Big Data in financial markets is now getting the "Fintech" treatment

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This article was originally published by International Business Times.

Within the silos of incumbent financial services, so-called fintech companies are good at picking off one thing only and doing it well.

This approach is also taken within data science, where a lot of the properly intelligent work is about understanding the domain (problem) and how best to use the information/data for the problem you have. In doing so, a fintech approach—collaboration, open-sourcing code—is helping to gradually change the culture of finance, even in some hitherto heavily guarded domains.

Dr Tristan Fletcher, research director, Thought Machine, said: "Without this specialisation and domain knowledge, it's very hard to rise above the noise. However, the algorithms themselves are often applicable in many areas or problems, and we are probably seeing decreasing specialisation here.

"Fintech lends itself particularly to specialisation because there are many well-packaged problems that need to be solved and can be clearly delineated—KYC, AML, credit checking etc. Having a competence in one area does not necessarily imply it in others, so it is harder to justify being a corporate fox vs a hedgehog."

Bonus-driven executives with a big bank or fund might be reluctant to share their secret sauce with people in their own company, never mind other corporates. In contrast, within the majority of small fintech startups, most employees will share (to varying degrees) in the ownership of the company, which will drive collaboration and the sharing of ideas internally. Furthermore, because of the relative balkanisation of a lot of the domains in the fintech ecosystem, there is much more incentive to co-operate than be competitive in the industry.

Fletcher said: "I think the main reasons for the disparity between fintech and investment banks and hedge funds is that a lot of the sources of revenue in the latter are closer to a zero-sum game. Profiting from pure speculation, for example, means that someone else must be losing money (assuming the counterparty isn't doing something more economically useful like actually mitigating risk).

"Furthermore, compensation in traditional financial institutions is much more closely linked to one's actual proximity to (often large) amounts of money. It's often a food chain with front office staff getting more than middle office, getting more than back office for example.

"Incentivisation through cash bonuses, which is gradually going out of fashion, encourages a very short-termist approach. Fintech incentivisation, being a relatively new and entrepreneurial sector, is much more about ownership in the company, which is clearly much longer term.

"Value in the fintech world is much more about the execution of an idea, whereas hedge funds, for example, are known to take a cloak and dagger approach to their intellectual property, in order to justify their management fees."

However, some financial institutions and even secretive hedge funds are changing, sharing some info, open sourcing non-core infrastructure; U.S. hedge fund AQR open-sourced some of its infrastructure around time series storage, which kickstarted the pandas libraries community.