Tabb Forum – October 7, 2015 — Over the past few years, the unbundling movement in financial services has enabled unprecedented levels of operational efficiency and lowered costs across traditional payments, banking, and lending – with sweeping innovations being introduced by technology-first companies that have made "choice," "value" and "enablement" part of their core DNA. Today, this sweeping movement has started to, finally, penetrate the brokerage industry.
Previously, the only options available to self-directed retail investors were the large discount brokerage institutions that offered an all-in-one solution but ultimately little true choice. With the new millennial investor demanding a more customized, a-la-carte investing experience, the brokerage industry is clamoring for its own unbundling renaissance. The increase in demand for choice, transparency and a bespoke user experience is being driven primarily by millennial investors who, as a whole, do not associate themselves as strongly as their earlier generations with large brands and brokerage firms.
Today’s investors and traders prefer customized, mobile-first user experiences and the ability to choose and mold that experience rather than a “One Size Fits All” approach. One example of this is how many use an app that makes managing their portfolio easier than what a traditional bank or brokerage provides them. In fact they would rather have access to a range of portfolio tools so that they can choose their experience based on the need at hand. The same applies to price. Bundled pricing is considered to be opaque and confusing and retail users want to be able to pick what they want and only pay for what they want.
The fact is, more investors are willing to try newer services for a lower price than ever before. In order to meet this seismic change in user behavior, technology firms and fintech startups are working together to create an amazing set of capabilities for the brokerage industry. Traditionally, brokerage capabilities have been locked within the four walls of the large legacy discount brokerage firms – presenting a huge barrier for new companies looking to offer innovative trading and investing products and services. The only way a company could do that outside of the brokerage behemoths was to build an entire brokerage operation themselves. This was a massive and expensive hurdle that few were willing to tackle.
Recently, though, the space has opened up, with new brokerage APIs now available to fintech companies looking to offer new services and choice. Innovation is exploding, with firms like Quandl in finance and economic data; Tradier in brokerage, market data, and digital advisory services; and Tradable in futures and forex providing the middle- and back-office services for new front-end solutions to be developed. Firms that leverage these companies can now offer a product at a fraction of the price the large brokerage firms can offer because they no longer have to build their own vertical-stacked back office operations. What took years to build and a ton of regulation to deal with is now available as an “in-a-box” solution with little to no upfront costs. These companies are enabling established as well as startup financial services and trading firms to easily offer new products and keep their focus on delivering a differentiated and innovative front-end user experience. In the last 12 months, about 1,000-plus new products have been launched as a result, something that was simply impossible before.
To illustrate this point, let’s take the following example of “unbundling” in action: If a company wants to launch a new Robo Advisor or Stock Chart Application, it can now connect to Tradier for data, custody and execution, and to AWS for infrastructure to create a never-before-seen offering for the market. Moreover, these firms can now offer their products at a fraction of the price the large brokerage firms can, due to them leveraging these B2B providers rather than having to build their own vertical-stacked back office operations.
So yes, the unbundling of brokerage is here and it’s gaining steam, but there is still a ways to go. What is imminent, however, is that individual investors will benefit from more choice, better products, and transparent pricing – something that the entire industry can agree is a good thing.
This post was originally published by Tabb Forum.
Tradier, Inc. is a cloud-based financial services provider and brokerage API company that offers a groundbreaking platform to serve Platform Providers, Advisors, Developers and Individual Investors. Tradier delivers an innovative set of fully hosted API's, modules and "out of the box" tools that are leveraged by a growing list of providers seeking to create innovative trading and investing experiences.
Created by developers, Tradier is a technology linchpin that works with organizations that want to democratize access to data, trade execution, low cost trading and market connectivity through cloud access. In addition, Tradier's APIs empowers third-party developers to build applications such as algorithmic and robotic trading systems.
The Tradier solution features REST-based and Streaming APIs, and turnkey tools that deliver speed, choice and simplicity – all on a secure platform.