[ M A R K E T
R E V I E W
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D ATA ]
T
he last few years have seen an
astonishing assortment of sensation-
alist newspaper headlines likening
big data to ‘the new oil’, ‘the new gold’ and
alarmingly ‘the new God.’ Many custodian
banks have watched technology companies
like Amazon, Google and Netflix monetise
their users’ data to brilliant effect, and they
want to imitate that success. Identifying new
revenue sources is not a nice-to-have but a
must-have for securities services whose core
custody and fund administration products
are facing huge margin pressures.
McKinsey data shows the revenues at
securities services grew by only 3% per year
between 2010 and 2016, as low interest rates,
a relentless ambush of regulation and fee
compression took their collective toll. In
contrast, Amazon’s lowest recorded annual
growth in revenue between 2012 and 2016
was an eyewatering 19.5%. It is improbable a
big data strategy of the sort imagined by the
custodians will yield Amazon-esque returns,
but it could open up the door to revenue
diversification, or so the thinking goes.
The big data strategy at most custodians
can loosely be deduced as follows. Gath-
er lots of unstructured information about
customers and markets which is parked
– usually unsystematically – across their
businesses and use artificial intelligence (AI)
technology like robotic process automation
(RPA) to organise the data identifying any
trends or linkages. These insights in theory
could help banks not only develop custom-
ised products on a timely basis, but even sell
“We believe clients will pay a premium
to custodians for performance analytics
supported by APIs.”
DARON PEARCE, EMEA CEO, ASSET SERVICING, BNY MELLON
proprietary and bespoke information and
research to clients.
The big data product
Custodians have access to data across multi-
ple markets and intermediaries, along with
an entrenched understanding of regulations
and local requirements throughout their
networks. “Big data analytics is one of the
major products we are looking at given the
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Global Custodian
Fall 2018
vast repository of information and data
that we currently hold. By making sense of
this dematerialised data, and reporting the
key findings back to clients, providers can
increasingly reposition themselves as data
custodians,” explains Patrick Colle, general
manager at BNP Paribas Securities Services.
Custodians are confident they will be able
to provide asset manager and investor clients
with invaluable analytics on investment/
market and risk trends, helping customers
generate alpha and safeguard their business-
es. “When considering big data and where
the custodian sits in the value chain, our in-
stitutional clients are looking to their custo-
dians to help them generate both investment
alpha and operational alpha. In essence, it
is now the custodians’ job to enable clients
to have better and more effective access to
their own data,” says David Brent, global
head of technology sales, investor services at
JP Morgan.
One client – speaking at The Network
Forum in Vienna back in June 2018 - ac-
knowledged the historic custody model of
asset safekeeping, processing settlements
and corporate actions and the provision
of tax services was irrevocably broken,
adding there was presently a race to zero on
fees, which was not sustainable. The client
however, confirmed that he would be willing
to purchase data analytics from custodians
provided the information was useful, and
contributes to tangible alpha generation or
improved risk mitigation.
Monetising data: A false dawn?
Not everyone is convinced big data can be
effectively monetised. Critics say many cus-
todians have similar geographical, client and
product footprints, suggesting the analytics –
at least on the investment side – is not going
to reveal anything particularly noteworthy.
The investment analytics market is also
very saturated, while a number of buy-side
firms are scaling back on brokerage research
and moving to execution-only relationships
because of the MiFID II inducement ban.
This could make data analytics a tough sell
for custodians.
The cost of mining data and investing in
the necessary technologies to aggregate it all
will not be trivial either. Just like any prod-
uct - if custodians want clients to buy their