Fintech Beyond Payments: The Wall Street Invasion

When the results of the 2016 Extel survey, which names the best of the European financial community in various different categories, were announced in June, there among the famous institutions like JP Morgan, Société Général, and UBS was a company with much less recognition. Makor, a relatively young but fast-growing firm with global reach and a unique approach to investment, won the top ranking in Global Special Situation Sales. The achievement could hardly be surprising, after the company was ranked second the previous year, and third in 2014.

The Extel survey is conducted annually by the company, which has been a leader in financial news and information for over 100 years. The survey is dominated by the biggest brands in European finance. So how did Makor, a company less than a decade old, break into this group of financial powerhouses? A short answer would be: It brings together tradition and new technology.

Makor was established by two ex-managing partners for Cantor Fitzgerald. When it had grown to include offices in London, Geneva, Paris, and Tel Aviv, the company's one moment of media attention (prior to the Extel win) came, with the acquisition of one of Wall Street's oldest stock brokers, Oscar Gruss & Son.

The advance of software and computing technology has netted huge efficiency gains for many industries, but applying the model to the financial industry involves barriers specific to finance, including regulatory hurdles. An algorithm that makes a financial service more efficient can be part of a financial technology success, but Makor has combined the approach to data with deep roots in institutional investment and traditional broker services. However, providing traditional financial services to the usual clients of those services is what separates the company from most fintech companies, Michael Halimi, Co-Founder and CEO of Makor Capital says.

"Makor is between fintech and a traditional financial services company," Halimi said in an interview. "We have a dynamic and powerful R&D team based in our Israeli office. At the same time our European and US sales force is serving our instructional clients on the ground. From Savile Row to Madison avenue, we are making sure to deliver tailor made advice and services. If we are different from any banks and brokers in the market, it is probably because of our size and our fast decision-making process."

The speed and effectiveness of Makor's decision making is powered by its research and development. This also provides a promise of future improvements, just at a time when Halimi says the traditional investment banks have dramatically reduced their manpower from the sale side to the research, which negatively impacts their client coverage, and their ability to recognize opportunities in special situation and risk arbitrage.

The disruption of common business practices by new technology and the data it can deliver, sort, and utilize is at risk of seeming clichéd as startups and technological pioneers tout the "disruptive" power of their services. Consumers are also becoming used to the idea of technology companies handling their money, due to the hype around businesses like Apple Pay. As important as those ventures may be, however, they represent only a small corner of the financial market which is currently being stormed by companies applying technology to the world of finance. Fintech actually has a much longer history, and a much broader range of applications, than commonly thought.

That technology is often presented as data control, but it is no less true to say that it is the long-awaited future in which algorithms and "artificial intelligence" have enabled entirely new approaches to old problems.

"Fintech is omnipresent at Makor at all levels, from execution, to research, to client portal, as well as sales data analysis. We have invested from day one in an algorithm trading and execution platform to optimize and give the best execution to our institutional clients," Halimi said. "We have algorithms and robots that help our trader to execute any special situation or arbitrage trading taking advantage of market inefficiency."

Algorithm trading can generate profit more quickly and frequently than human traders, as it is carried out by computers systematically according to defined instructions. Makor has also applied its innovation to the foreign exchange market, with a proprietary portal and a high speed aggregation platform. This drive to innovate, rather than the technology as such, is the hallmark of fintech, and the reason it will continue to make inroads in a market dominated by big, slow-moving companies.

Equities brokering is just one of many areas in which fintech innovation could push into lucrative markets traditionally controlled by big banks. Companies like peer-to-peer credit marketplace Lending Club and digital retail bank for underserved consumers Kreditech have used technology to extend financial services to new customers, and financial professionals believe they could soon steal major market share from the traditional financial services companies, according to research from PwC. Going forward, investment experts are predicting fintech will benefit customers in new financial categories.

As the Extel results show, fintech is no longer a future business development; fintech has arrived. Individuals, business and institutions cannot afford to miss out on its benefits.