Chris Murphy
Sep 24, 2021
-min read

Services not systems: What capabilities do you need to run your capital markets business and how do you acquire them most effectively?

Services not systems: What capabilities do you need to run your capital markets business and how do you acquire them most effectively?
Our lives continue to be transformed by remarkable new digital services. The smartphones in our pockets open up a world of possibilities, with apps providing transportation services, grocery ordering and streaming entertainment. User experience has been transformed from the old world of orchestrating these tasks manually, to service providers who pull all the components together for us and deliver them effortlessly in a beautiful digital interface.

We all instinctively marvel at the miracle of this revolution, certainly those of us of a generation old enough to remember life before the smartphone and internet. Yet, how many of us really think about how these companies deliver such delightful customer experiences? It is fair to say that most users don’t give this a second thought, they are just happy to take advantage of the convenience and affordability these services provide.

There are, however, insights to be gleaned by looking at these digitally-native companies, since they have application to all businesses in industries yet to be transformed by the digital revolution. These companies clearly need to build some software themselves, but they understand that they can create better solutions, more quickly, by utilizing third-party digital services which are integrated into their products. The focus should always be on what creates value for their customers and it is the unique collection of capabilities which defines that, not whether they run the systems required to deliver those capabilities themselves. As a result, a whole new supply chain of digitally-delivered services has been born to drive these businesses.

Take Uber as an example. They are famed for their approach to using what are called microservices, utilising over 2,000 such services to operate their business. Microservices are applications hosted and available over the network via an API (application programming interface). Some of these microservices are built in house, but many are sourced from third-party companies as it simply does not make sense for Uber to build these functions themselves.

One such service Uber, and many others, takes advantage of is Stripe. Stripe focuses on one aspect of business: payments. They take care of all the integration to international payment rails so that Uber don’t have to build that themselves. However, they don’t just provide a system to do this (a bunch of code Uber would need to deploy in order to create the payment functionality), they deliver this as a service, abstracting away all of the complexities of the payments world, both technical and contractual. Not only that, but the service adapts over time to changes in the payments ecosystem, allowing Uber and their customers to take advantage of these developments with no, to minimal, incremental cost.

Have you ever received a text from Uber saying your driver was around the corner or needed to call your driver because you were finding it difficult to access the allotted pick up spot? Uber could have built those services themselves but they use a company called Twilio to power this part of their service. Why? Well, not only would Uber have had to spend hundreds, if not thousands, of engineering hours building the functionality, they would also have had to maintain complex relationships with global telecom carriers to support the functionality they required. Twilio does all this for them, as a service, not just providing a system.

One starts to realise the power of this approach - services provide a more holistic value proposition than systems alone. It is not just the technology which creates the utility but the full collection of capabilities they facilitate. Netflix, Amazon, Ebay and plenty of others have all driven huge business growth and value to customers by embracing the use of microservices.

More recently, however, whilst the benefits of utilising “services” remain strong, the “micro” aspect of microservices is being called into question, including at Uber. The problem comes when you start to have hundreds, or in Uber’s case thousands, of these microservices all integrated together. Each microservice is somewhat of a black box, whose functionality can change at any time and then easily cause unexpected behaviour. Understanding dependencies between services can become quite difficult, as calls between services can go many layers deep. Hence, deploying too many of these services can become just as much of a nightmare to maintain as the traditional patchwork quilt of integrated systems from which you would like to move away. The benefit of the services-based approach is eroded.

At Ediphy, our goal is to deliver integrated services to our capital markets clients, not systems. We believe much of the functionality needed to operate investment management businesses is highly commoditized and this functionality can be provided as a collection of digitally-delivered services, so that each organisation can focus on what differentiates them - investment performance and product design. Further, the more these services can be integrated by the service provider, the more value is created for the investment manager.

Just like with microservices, the mistake we see all the time in capital markets is businesses buying “best of breed” systems to solve each part of the value chain. Not only do they find the cost of maintaining all these integrations over time prohibitive and unsustainable, but often the cost of the initial integration is higher than building the functionality itself. What you are often doing is shifting the complexity from inside the components to the connections between the components, which are often harder to control.

This is why we have built an integrated, user-facing, digitally-native collection of services to help you transform your operations, allowing you to survive and thrive in this brave new world. We are helping clients move away from their current rag-tag collection of systems whilst avoiding the perils of the microservices approach. Preserving data lineage and process integrity is too important in capital markets for most businesses to take on the integration problem.

Adopting our macroservices approach allows you to consume the range of services you need, from execution management to settlements, risk analytics to regulatory reporting, without the micro-integration challenge. Ediphy internalises the service integration problems so our clients don’t have to worry about consistency issues, maintenance etc.

Whilst we understand implementing change often needs to be evolutionary (yes, integration will be necessary if you have legacy), the mindset needs to be revolutionary.

Think services not systems to future-proof your organisation.