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The Role of Interoperability in Digital Transformation

This blog has been published as an article on TabbFORUM in October 2022.


Financial institutions are in the process of undergoing a generational refresh cycle after the slow adoption of technology innovation. Emerging technologies provide incumbent banks with the opportunity to fundamentally transform their own operating models and renovate their technology platforms. Financial institutions have looked to start-up and growth companies to innovate, following them closely through principal investments, incubators and dedicated in-house teams. Given the operational complexity and highly regulated nature of the businesses, a collaborative approach is required to integrate technology innovations in the ecosystem of the incumbents. This approach has fundamentally driven the financial industry’ digital transformation agenda with its key elements of data connectivity, automated workflows and application interoperability. The term interoperability is synonymous with efficient workflow between applications. By setting out new agile ways of collaboration, it sits at the core of the transformation agenda and will accelerate its implementation.


Interoperability

Application interoperability has been one of the key technology developments over the last few years. Interoperability is the ability of different systems or applications to communicate with each other, exchange information, and then take action with that information. Its original focus was on the integration of web applications with other web applications. Open-system containers were developed with the objective to create a virtual desktop environment in which these applications could be registered and then communicate with each other. Interoperability has now evolved into a full-service platform solution which includes container support, basic exchange between web and web but also native support for other application types and advanced window management. Smart desktop (also referred to as desktop integration) platforms provide the infrastructure to create intelligent workflows with customized workspaces, regardless of the software frameworks and programming languages. The workspace management and user experience (UX) is greatly improved with the ability to snap and dock, tab and tile windows creating saveable workspaces. It allows cross-application data sharing in an instant and eliminates manual re-entry and error rates. This optimisation of workflows leads to substantial gains in effectiveness and efficiency in an open architecture framework.


Financial institutions combine large numbers of in-house and third-party applications that need to work together in accordance with the required workflow. Interoperability acts as the integration hub to execute the vision of open standards in finance. Open standards are an important enabler for interoperability as they allow any vendor to implement them and make their applications interoperable with the ones of the other vendors. A set of codified specifications for writing API, known as the Financial Desktop Connectivity and Collaboration Consortium (FDC3) standards, is driving these developments under the umbrella of the Fintech Open Source Foundation (FINOS). A growing number of financial institutions have worked collaboratively with technology vendors to accelerate these developments given the substantial potential to optimize the workflows across the sell and buy side.


Accelerating digital transformation

As mentioned, the goal of interoperability is to synchronize applications. It is important to emphasize that this includes any type of application—legacy, native, in-house or third party, and virtually-hosted apps such as Citrix. Connecting a web application to another web application may be something your developers can do in-house, but the power to connect an in-house behemoth application (most likely written in old programming languages) to a newly implemented third-party system is another level. This is why interoperability is a life-line for digital transformation projects. We often see that a first step to digital transformation is getting your technology in sync. There are three main use cases for interoperability that further shape the transformation agenda.


The first one focuses on gaining efficiency and reducing errors. Smart desktop technology allows users to create automated workflows that users never thought possible. It connects all of these systems in intelligent ways so that multi-step processes are streamlined, and context is shared across all of the applications on screen at once. Integrated applications and context sharing make seamless data-sharing easy. Users have successfully automated internal processes such as RFQ response and other mission-critical workflow initiatives, and advanced their information sharing across preferred applications. To effectively service a client in capital markets, a trader or salesperson needs to pull together relevant information, synthesize it, and deliver insight to the client – the quicker, the better. The context can be automatically passed to the order management system (OMS), market data terminal, inventory management system, customer relationship management (CRM), etc., so that in an instant the participants know everything they need to know.


Faster technology innovation is the second interoperability use case. Technology teams are most likely overwhelmed with new software as a service (SaaS) applications. However, these applications usually address only specific problems. As they are siloed in the web browser, they don’t connect with the legacy systems that drive the enterprise. With smart desktop platforms, firms can deploy these new applications quickly, integrating them with existing workflows and applications users rely on. Updating individual applications when the time comes is straightforward and non-disruptive to users. The technology team can deploy new solutions users want without overloading them with more applications, and without the cost of server-side integration in order to rationalize workflows. Making a change is as easy as unplugging one app and plugging in another.


Improving acquisition success rates defines the third use case. In any acquisition, corporate development teams on both sides must come together to create synergy between completely different technologies. Each side must write their own APIs and code to talk to each other’s servers, share data, map fields, etc. in order to accomplish back end integration. The average time for this process is in the area of 18-24 months. Smart desktop platforms can connect disparate tech from two different firms. The accretive value of your acquisitions can be captured in a fraction of the time. This allows both technology teams to realize accretive value faster by streamlining the integration process; lowers the capital investment required to deliver on the strategic value; delivers a cohesive user experience to clients; and gains competitive edge by getting to market faster.


The possibilities for automating workflow are endless. They depend entirely on what the vision and the objectives of an organization are, and what it aims to achieve across the different use cases. Interoperability is moving from nice-to-have to imperative across capital markets. Alpha is generated at every step in the investment and trading process. Technology has facilitated many gains, and interoperability is the next leap forward.

Authors: Dan Schleifer and Joerg Ruetschi

Dan Schleifer is the CEO and Co-Founder of Cosaic, a US software firm that specializes with its two products ChartIQ and Finsemble in capital markets. Finsemble is its smart desktop platform and interoperability product.

Joerg Ruetschi is the COO of Cosaic and author of the book “Transforming Financial Institutions”.





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