Alastair Richardson of Xilinx on The Future of Technology in Finance
Today FinTech presents an exclusive opinion piece from Alastair Richardson of Xilinx shares his knowledge of the innovative technologies on offer in the finance industry.
The Future of Technology in Finance
Capital Markets are going through another evolution. Regulations such as FRTB, the transition away from LIBOR, BREXIT, AML and Cybersecurity are several challenges to name but a few. These market evolutions and challenges are changing how and why banks spend their dollars and driving an ever greater focus on efficiency from a human capital and a technological perspective. Financial institutions need to get smarter, with less resource, and yet remain flexible and agile.
From a technological perspective, the business has been evolving and developing a greater understanding of the underlying technology both as a differentiator for their customers, an enabler for their traders and an increasing cost. In the past, it was enough to buy a new server and your Algo’s would run faster, the real-time risk could handle the increase in Market Data, and there was a simple strategy for increases in data and complexity – buy more servers.
Which reminds me of the first algos I worked on, written in Excel and updating my spreadsheet in ‘real-time’. It was a suitable platform, but by no means the most efficient and had trouble with a large number of orders, Excel was after all designed to be a multipurpose spreadsheet application, not an algo trader. Over time, everything moved to more suitable platforms, and highly skilled programmers moved the algos to much faster platforms, which increased in complexity to become smarter and technology helped to accelerate further. Some banks and HFTs started employing FPGA’s in the race to Zero and GPU’s in the grid for computation.
We again find ourselves in this position but with a new challenge, Big Data, AI, Cross Asset Electronic trading and risk, and complex simulations and pricing. And yes, we also want to be fast (maybe not the fastest but certainly not last). With CPU’s now stagnating and grid sizes getting out of control due to cost, management of the infrastructure and scalability, the industry needs an alternative to gain the next level of technological efficiency.
The GPU is being deployed in many use cases such as machine learning and has a position in capital markets to help accelerate several functions. However, GPU’s suffer from being an ASIC designed for graphics but being manipulated to perform other tasks. GPU’s therefore struggle to be as efficient as a solution designed specifically for the purpose. As such, GPU’s generate large amounts of heat, use considerable power and can be expensive to deploy on scale.
FPGA’s have been around for many years in capital markets and traditionally associated with Low Latency, but several banks and exchanges have deployed them in real-time computational risk such as JP Morgan and the CME. The problem has been threefold, standardisation of an FPGA platform, complexity to code/time-to-market and a lack of available developers.
Times have changed! Xilinx, the inventor of the FPGA, have released Alveo last October 2018, a standardised OEM platform that allows software developers the ability to access the power of FPGA and drastically reduce the time to market. FPGA’s use about a 10th of the power of a GPU for a similar level of performance in specific functions and can accelerate CPU based calculations by a factor of 50-400x according to several independent results on applications such as Monte Carlo simulations, Black-Sholes Pricing, Cross Asset Margining and many more. All this can be done directly on the network, a considerable advantage over CPU or GPU, freeing up limited resources for other purposes.
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Alveo cannot solve all the problems, but it is a critical component and part of a solution to significantly reduce the size of datacentre infrastructure while providing significant performance improvements. Lower TCO means more funds can be diverted to revenue generating opportunities; easier management reduces administration, improved calculations and performance means traders are going from end of day to real-time intra-day risk. Customers get improved performance via smarter and faster pricing, while AI is accelerated to the next level. Crypto and blockchain also can benefit from FPGA’s as can be seen by the recent trend in mining to move from GPU’s to FPGA as a more energy efficient solution as well as more flexibility.
Banking is just starting to look at how FPGA can accelerate their infrastructures, with many testing the features in the cloud such as Amazon F1. Ask most banks CTO’s, and they have a cloud strategy, most don’t yet have an FPGA strategy, but they are coming, and on recent evidence they are coming fast.
FIVE things fintechs must do to keep investors onboard
New investors flocked to the stock market during the COVID-19 pandemic. Thirty-eight percent of investors said they had never had a brokerage or similar account before opening one in 2020.
Low or no-fee trading options have helped accelerate the trend – nearly half of new investors said they accessed their account primarily through a mobile app. As FinTechs, how do we create the trust needed to keep new investors in the market and create a fruitful customer experience for them?
The financial industry does a disservice to individual investors if we merely offer tools that focus on making money quickly, an approach that usually backfires. Instead, the surge of interest presents an enormous opportunity for those who want to help more consumers use financial technology to educate them on responsible spending, saving, and investing in order to achieve financial wellness current fintech tools have welcomed individual investors in the door.
Now, it’s time to focus on education and improving their experience going forward. There are several ways those of us in fintech can step up to shape the future of retail investing so that it works better for everyone, starting with the following areas.
Equal access to financial wellness education
Financial health should be available to everyone — but today, not everyone has the educational resources to achieve it. One study shows that only 3.9% of students from low-income schools were required to take a personal finance class. What they aren’t learning in school or from family members, fintech companies can provide on their platforms.
The companies should move from solely offering financial services to a more responsible model of education, advice, and prescriptive choices to help consumers develop better habits and make wiser financial decisions. Not only can they empower consumers and bridge historical wealth divides, but they can also stimulate growth by opening up new consumer segments.
Just as we’ve come to expect that our fitness routines are tailored to our individual bodies, we’re also ready for finance tools that go beyond one-size-fits-all solutions. But only six percent of financial institutions say they’re using the kind of technology that allows them to deliver a deeply personalized experience. Fintech tools need to reflect that financial success looks different for each of us.
For one consumer, it may mean providing guidance on how to pay off student loans early; for another, it may mean prescriptive actions that enable them to stick to a budget for the first time; for a third, it could look like prioritizing environmental, social and governance (ESG) investments, so that her portfolio aligns with her political beliefs.
Now, we are seeing financial technology beginning to meet the demands of personalized finance in a substantial and meaningful way.
The rise of AI-Powered Advice
Big-picture advice and predictive guidance used to be a feature of high-end financial advisory firms — a perk only available to those who could afford it. But thanks to rapid advancements in data analytics and artificial intelligence (AI), that kind of holistic advice is now more accessible than ever. AI-driven robo-advisors can parse many different streams of financial information, delivering customized answers to key questions: Is it time to buy a home, or is it smarter to keep renting? Can I afford to take out another student loan?
Intelligent connectivity powered by AI can anticipate consumers’ needs and next steps, making proactive suggestions that guide them along the path to financial wellbeing. Fintech companies can also help consumers identify when their financial picture becomes too complex for a robo-advisor, and help them find a human financial advisor to meet their needs.
Focus on financial mental health
New investors are quickly finding that the market can be overwhelming. That’s not surprising, financial anxiety is common and studies show that financial stress can have an impact on mental health for some.
It’s not enough for fintech companies to give retail investors access; they also must provide the guidance and support that help consumers manage their financial well-being. Educational tools can ensure that consumers are well informed about their options.
Predictive analytics can anticipate consumers’ questions, serving them key information and insights before they ask. Features that emphasize a comprehensive notion of financial well-being, rather than short-term wins and losses, can also help ensure that consumers are keeping their eyes on the bigger picture.
Gamification for good
The surge of gamification apps has done an impressive job making investing as engaging as playing a video game or joining a social media platform.
Much of the current use of gamification emphasizes short-term thinking, but there’s also an opportunity to help consumers think more broadly about their overall financial picture. One example is peer benchmarking, a feature that enables help consumers to see how their financial habits compare to those of friends and fellow consumers.
Gamification can also be used to incentivize making smaller, smarter choices — for example, rewarding saving over making an impulse buy.
The future of fintech is about more than just broadening access to the markets. It’s about making sure more individuals have access to the tools that can help improve their financial well-being—in the ways that suit their own circumstances and needs. The potential to act within their own set of individual priorities, with their long-term financial wellness in mind is much more empowering to a consumer than simply relying on short-term, high-risk investments.