A myth is often repeated in online trading that technology providers are good for startups and SMEs, but big brokers don’t demand them because they do everything in-house.
They are said to prefer developing proprietary solutions that they can control, rather than outsourcing their technology needs to third parties. They are also seen as being highly risk averse when it comes to data protection, and this is often given as another reason for in-house development.
In our experience, this may have been the case in the early days of the industry, but it simply isn’t true anymore.
As a long-term technology provider in the space, we have noticed that the online trading industry is gradually moving away from focusing on in-house development to focusing more on Software as a Service (SaaS).
There are many logical reasons for this. First, software is time-consuming and expensive to develop and maintain. It’s not something the IT department does on the side. Building internal systems requires a completely separate team specifically for software development.
It’s like building a small business within a company that doesn’t have to make a profit because it only works for you. This is an inefficient use of capital and almost guarantees a suboptimal result.
That’s why some of the biggest companies in the world are using Salesforce rather than trying to recreate those systems in-house.
This is also the reason why retail brands do not develop their own operating systems for point of sale, or why design companies use Adobe products instead of creating their own.
How much do listed brokers spend on technology?
There are some notable exceptions. Plus500 is a high profile brokerage that is clearly supportive of this trend. It is a special case where the company’s business model revolves around proprietary brokerage techniques.
In the company’s 2021 interim financial information, IT and technology costs, along with “other allocated technology-related incremental costs,” came to $70.3 million.
Given that the company’s business income was $872.5 million for the same period, that puts its technology expenses at about 8% of income.
In the case of IG Group, for 2021, total wages and salaries were £157.4m. Technology related employment accounts for the lion’s share of this number as it is the largest single division of the group. Of the 2026 employees, 759 belong to technology.
Maintaining financial technologies is a resource-intensive endeavour, as is keeping them modern and cutting-edge in the face of constant innovation and increased competition. In an already crowded market, one of the most important decisions a brokerage firm makes is where to allocate its resources.
We are seeing that more and more brokerages are now choosing to outsource certain core parts of their infrastructure to professional development firms, rather than operating on their own.
Some of the reasons for SaaS
In our experience, internal programs often fall short, both in the initial implementation and in the iterations required to improve them over time. Brokerages usually do not have experience in these areas, so competing with professional development teams is difficult.
Remember that technology providers work with a wide range of financial companies. They have experience developing custom software for all types of use cases as well as integrating different systems across a variety of standards.
This experience in meeting the needs of a variety of financial participants gives them a clear advantage. Also, perhaps most importantly, competition between different technology providers leads to innovations that internal teams do not hope to match, because they are cut off from the market.
At Panda, we’ve been feeling the tide change in the orders that come in. Over the past few years, we have taken many different projects from prominent brokers who needed to upgrade this or that part of the trading infrastructure.
Popular demand is mobile trading apps that use the existing server backend but with completely overhauled interfaces.
Dedicated web applications are also a very popular request because they are an efficient cross-platform solution that enables brokers to revamp the look and feel of their trading platforms.
Our CRM product is another example of software as a service that is gaining increasing traction among major brokers who may have once grasped the idea of developing their own in-house solutions.
We have found that the steady evolution of the CRM system over time through iterative improvement and modular scaling has outpaced the in-house solutions we now invite to replace.
Brokers are often shocked by how much it can do and how advanced it is in terms of connecting to other systems and controlling each department.
This is why an increasing number of them are now more comfortable subscribing to a software solution that meets their needs.
If you would like to learn more about what PandaTS can do to help you update your existing brokerage systems, please call us.