Motive Insights

By Motive Partners

Motive Insights - The Art of Legacy Transformations

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April 10 · Issue #300 · View online
Motive Insights
Motive Insights Update:
In celebration of our 300th edition of the Motive Insights newsletter, we are adjusting the format of the newsletter to a monthly cadence going forward. You can expect the same quality and variety of content, now delivered to your inbox on the last Sunday of each month. Our intention is to allow for a more detailed lookback at the top news items in our industry each month, layered with Motive’s expertise and insight. Each issue will explore FinTech industry news and trends, highlight Motive Partners’ portfolio milestones, and showcase our new monthly podcast (Motive Insights: The Future Delivered).
 As always, we are thankful for your support over the past 300 editions, and look forward to continuing to deliver rich Insights from our sector to your inboxes each month. 
This week, we are joined by Stephen C. Daffron, Co-Founder and Industry Partner at Motive Partners. Stephen is a leading thinker and practitioner in the FinTech space with extensive experience in Legacy Transformations. Access the full blog on the Motive Partners website here.
The Art of Legacy Transformations
Transformations are complex, multifaceted, and nearly always messy.
The marketplace is full of firms promising to transform legacy systems and processes quickly and efficiently. There are dozens of consulting firms that will cite the speed and low risk nature of their transformation as reasons for your company to pay them tens of millions of dollars. Your inbox, like mine, is often flooded with advice, why your company needs to be transformed today! My advice: ignore the hype and face reality: transformations don’t happen quickly, they are never cheap, and from beginning to end, the process is strewn with landmines of existential risk. Transformations are complex, multifaceted, and nearly always messy. Still, there is a queue around the block of companies that want and need them with boards and regulators issuing peremptory deadlines for completion. Why? Straight from Economics 101: Transformations are required when a firm’s supply of products and services (the supply curve) has failed to keep pace with the requirements defined by their clients (the demand curve). Everyone can draw that picture. The further apart those curves drift, the more urgent and therefore time and resource-consuming the transformation will be.
This misalignment generally has three common sources – I refer to them as ruts – and understanding which rut or ruts you are stuck in is the best way to start thinking about a transformation:
  • Obsolete data and technology architectures
  • A static leadership and employee culture that are reflexively resistant to change
  • A go-to-market framework that lacks the ability to recognize and anticipate client demand
Depending on the rut and the concomitant urgency of unmet client demand driving the pace of competitor inroads, legacy transformations come in two basic flavors: incremental (preferred) or big bang (to be avoided). Acknowledging the ruts, confronting them as early as possible with the company leadership, and committing to an ongoing process to keep up with the demand curve are the first steps to creating an effective transformation.
Industry-Wide Transformations
The most impactful transformations happen when entire industries, not just companies, recognize a shifting demand curve. In my experience, the most successful example of this was the financial industry recognizing the necessity for better understanding of market risk. In the 1990s, none of the major financial institutions had any real handle on how much risk they were taking across their products on a daily basis – much less in real time. The idea of having near real time risk metrics was unheard of; speed limits are irrelevant if you don’t know how fast you are going. As the derivative markets took hold, exposures skyrocketed, and the failures were epic. Headlines screamed for transformation. Congressional hearings ensued. Regulators set deadlines. Consequently, there was a ground swell of transformational technology that swept across the industry. The first and most famous output of that groundswell was the development of Securities Database by Goldman Sachs, known as SecDB, which put Goldman ahead of the curve on being able to understand, explain, and exploit market risk in near real time. SecDB created a huge competitive advantage for Goldman, enabling them to price trades and assess risk on millions of trading positions every day. Within months, every other bank on the Street and around the world started working the order to transform their risk systems – and to a greater or lesser degree they succeeded. Smaller scale transformations also have the capacity to impact on an industrywide level. In the last decade, demographic changes – the retirement of the baby boomers, the omnipresence of internet banking, and the increasing demands of younger consumers – have forced the wealth and asset management firms to transform their systems and service delivery from once-a-month paper statements and once-a-year tax  forms to near real-time delivery of data balances, broad swaths of new products, and instantaneous answers to clients’ questions. While the transformations are still underway, the leading institutions have made great strides in bringing their supply curves back into line with the still morphing demands of the clients. The lagging institutions – those hobbled with obsolete technology and static leadership teams – are losing market share, being acquired by the more successful firms, or simply sinking under the red ink of the higher cost of old technology and manual processes.

Quote of the Week
This week Wells Fargo Analyst Jeff Cantwell highlighted the significant opportunity in financial technology in a note on Tuesday:
“We see a $1.5 trillion annual revenue opportunity for FinTech companies globally, and expect 6% annual growth over the ensuing decade… Now is a highly opportune time for investors to take a fresh look at FinTech given current valuations. We expect that these companies’ fundamentals will strengthen in ‘22/'23 and that the group’s current discount to the broader market will not hold.”
Cantwell goes on to say the sector will be driven by several major themes; first is digitization, stemming from increased adoption of digital payments, and the second is modernization, through the shift to cloud based models, and finally, cryptocurrency. 
Motive Portfolio Highlights
  • CAIS - CAIS announced $100M in new funding from Reverence Capital Partners.
  • InvestCloud - InvestCloud, Inc.‘s Chief Product Officer Yaela Shamberg was interviewed for Citywire Wealth Manager Magazine. Read the full story on Gamification and Innovation here.
  • LPA - LPA was voted the Best RegTech at SRP 2022, the Structured Retail Products European annual conference. 
Upcoming Industry Events
Select M&A Activity
Source: FT Partners
Source: FT Partners
Select Funding Activity
Source: FT Partners
Source: FT Partners
What We're Reading This Week
Rewire to provide financial services to Lebara UK customers
India’s HDFC and HDFC Bank will merge to create financial giant
'Flash Boys' exchange IEX adds Sam Bankman-Fried's FTX.US as investor with crypto push taking shape
Looking in the side-mirror Omicron is dealing a big blow to China’s economy
OneMain Holdings’ cash flow increases the safety of its dividend yield
Incumbent banks accelerate transformation to compete with big tech
IFGS 2022: FCA pursues outcomes-based approach to fintech policy
Uber, Lyft’s win in Washington state comes before NLRB rules on gig worker standard
In a bid to lure Investors, a REIT turns to Bitcoin payments
Emirates NBD joins Plug and Play startup ecosystem
A wake-up call for bargain hunters
IBM introduces real-time AI for transaction processing
Robinhood rival Public.com ​​pitches town halls and analytics to reach retail investors
The smaller 'Store of the Future' trend is real
Air Canada to offer buy now, pay later bookings with Visa Installments
Regulation, Protection & Privacy
Another regulator moves to crypto world as JST hires from New York Fed
Apple’s financial service ambitions may clash with EU’s DMA
PopID, Visa partner to debut facial verification payments in the Middle East 
Key Hires & Talent
VC Heavyweight Sequoia Names Roelof Botha As New Global Leader
Food for Thought
 “Good people are happy when something good happens to someone else. ”
 ~ Dean Smith
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