Startup spotlight: Cobalt, reengineering the FX market
As we draw our series on the top startups to watch in 2020 to a close, we speak with Darren Coote, the CEO of Cobalt, a fintech startup reengineering the FX market.
Hi Darren. Could you please tell me a bit about what Cobalt does?
We operate within the Foreign Exchange market which is the largest and most liquid market in the world. Despite being extremely modernised in some areas, there have been noticeable parts of the market that have been neglected. Most notably in post-trade operations. Currently, trades are processed using aged technology replicated across each institution's back and middle office, meaning trades are needlessly sent through layers of legacy systems (sometimes even manual processing) in order to be prepared for settlement - introducing extra cost and risk.
We noticed this at Cobalt and have built a post-trade infrastructure so FX post trade operations can be managed via a single platform using modern technology and re-engineered functionality that is fit for purpose in today’s markets.
By providing a single platform to manage all back and middle operations, Cobalt strips away duplicative systems across institutions, meaning clients can benefit from cost savings delivered by the economies of scale and automation, whilst reducing their credit risk and relieving balance sheet usage.
Through our Cost-Saving Analysis Tool, we work with clients and their real trade data to show where we are able to reduce their cost post-trade costs. This typically shows a cost saving of upwards of 50% on their current costs, with further savings to be realised once legacy technology begins to be removed.
What gives Cobalt its competitive edge?
With the highest quality of technology, we are under huge demand.
Market participants are starting to wake up to the fact that current post trade operations are not sustainable. Our Core Ledger solution combines all necessary processes into one service.
Cobalt’s solution processes trades from all counterparties, cleansing data and matching it into a single, reconciled and standardised transaction. From this, all related parties can view their trade details in a single standardised database, requiring no need for further reconciliation checks. The resulting single post-trade process for all FX counterparties reduces duplication, errors, settlement risk and the need for onward reconciliation. This ledger of trades then forms the basis for Cobalt to provide added service such as credit management, netting and aggregation so clients can more effectively manage their trades before sending them for payment.
Our platform is flexible and modularised so that partners can incorporate our technology in stages, making it easier to adopt and suit their requirements.
What was your last milestone?
The most recent milestone was the onboarding of our platform by Deutsche Bank, XTX Markets and Saxo Bank.
Having the backing of three major FX market participants, one an established bank which has been at the forefront of innovation for over 20 years, a new breed of electronic market-maker, and a technology pioneer in banking and retail trading technology, demonstrates the versatility of Cobalt’s platform and it’s standing as the future of post trade FX.
What can we expect from your Cobalt this year?
As we move into 2020, we expect more market participants to wake up to the fact that what we need is a centralised post-trade infrastructure we sense that attitudes are changing, and people are waking up and smelling the coffee.
At Cobalt we are constantly expanding our client pipeline and are in the process of signing some of the largest FX liquidity providers. There are vast opportunities to extend Cobalt’s services and analytics, and we will be working alongside complimentary service providers to deliver post-trade efficiency during 2020 and beyond.
About Darren Coote
Darren Coote, Cobalt CEO, is an industry veteran with over 25 years’ experience in FX. He has held a number of high profile roles running the global FX trading and e-FX businesses at Lloyds and UBS. He has also served on a number of FX boards and committees including the Bank of England’s FX Joint Standing Committee and EBS’s executive board prior to the company’s sale to ICAP in 2006.
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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.