TiE50 is TiE Silicon Valley’s premier annual awards program founded by TiE Silicon Valley, the world’s largest not-for-profit network of entrepreneurs and professionals dedicated to the advancement of entrepreneurship. Each year, TiE recognizes promising technology companies as part of its TiE50 award program.
We were informed that Firm58 has been shortlisted as a TiE50 finalist from a pool of over 1,600 technology companies. The saying goes, it’s an honor just to be nominated.
But, who are we kidding? We want to win!
It’s been several weeks since my last blog post, and I can assure you, I haven’t been on vacation. We’ve been busy planning and are excited about our 2011 plans.
When Sam and I first founded this company, we had a vision to build a scalable platform that would support the daily post-trade transactions of capital markets firms. This past year brought unprecedented growth to the Firm58 platform with the addition of new bulge bracket customers, global exchanges, and leading broker-dealers. We’re very proud of this growth.
In 2010, we increased the number of transactions processed by 184% and trade volume processed through our platform was up 138% over the previous year. That’s fast growth and we’re ready for it.
This coming year, we plan to expand the capacity of our platform further and add many innovative new features. One of the key benefits of Software as a Service is that we work to continually improve and enhance it. Our customers, over time, reap the benefits of this constantly evolving software.
Firm58 remains committed to outpacing and out-innovating legacy systems and manual processes in 2011 and beyond. Visit our press page to read more about our growth and watch this space for news about our platform and solutions.
In our work with leading financial services firms, we’re often surprised to learn of the large number of execution venues and broker dealers – both large and small – that continue to manage their billing processes using spreadsheets or outmoded systems. Why would manual processing of this standard back-office procedure be considered disadvantageous, or even dangerous? The answer is painfully simple: Today’s markets are competitive and only the strong will survive.
This call for modernized billing systems is a familiar song. It was sung loud and clear a decade ago when telecommunications was the fastest growing industry in the world. In order to remain competitive, telecom providers needed to update legacy systems, in order to consolidate services to a single bill, provide customers with access to call detail data and associated fees, track and invoice for taxes to growing a multitude of jurisdictions, and ultimately, position their companies for growth in a highly competitive global environment. The trend continues today in what some consider the third wave of evolution for billing services in the telecom industry.
A recent Booz & Company report, “Evolution or Revolution? Strategies for Telecom Billing Transformation” shows that billing improvements are now one of the top telecom IT priorities, with 71% of survey respondents placing it in the top three priorities for 2011. The study goes on to say, “Executives are experiencing firsthand the critical role of the billing process in supporting new products and pricing models, bringing them to market quickly, improving revenue capture, and reducing costs.”
Drivers of Change: An Industry Comparison
Despite the obvious differences between B2C and B2B industries, billing for financial services firms, in many ways, is similar to that of the telecommunications industry. Today’s financial firms need to process and invoice more complex trades and more parties, roll out competitive pricing in response to changing market conditions, and improve customer service in order to attract liquidity and differentiate. However, in contrast, capital markets firms are much further behind than their telecom counterparts.
If telecom is in the midst of its third wave of innovation, capital markets firms are slow to recognize the first. Arguably, with more money flowing through the financial system, as well as an increased focus on regulatory and compliance requirements following the global economic crisis in 2008, automating billing and revenue management processes should be much higher on the list of priorities for any broker dealer or execution venue that wants to thrive during this recovery period and beyond. The lack of focus, priority and urgency demonstrates that capital markets firms have yet to recognize the strategic benefits of billing beyond simple automation.
A Blind Eye Does Not Beget Better Billing Practices
Manual billing may have been an acceptable way of dealing with month-end invoicing back when there were fewer execution venues and trades moved through the system mostly intact. But today, in a high-frequency world that eschews latency of any kind, trade complexity is the norm. And with trade complexity comes errors, inefficiency, and delays. Today, few firms can confidently and more importantly — immediately — answer these questions:
- Were we overcharged?
- Did we receive all of the rebates to which we are entitled?
- Was the correct rate applied to that trade?
- Do we have easy access to historical trade detail in the event of an audit or compliance requirement?
- How quickly can we implement a price change?
Today, there are a number of billing solutions built specifically for capital markets firms. These systems automate bill-related activities including calculation, presentation, and collection. Solutions such as those offered by Firm58 support revenue-generating efforts by helping firms implement flexible pricing models and cost-plus billing in order to support new high-frequency clients and provide detailed analytics about their revenue streams. In addition, firms offering Software as a Service (SaaS) platforms allow for web-based access to post-trade details to enable self-service in near real-time.
Bracing for the Future
During the late ‘90s, telecom companies experienced a challenging regulatory and competitive environment. On the regulatory front, the Telecommunications Act of 1996 passed with a goal to “open up markets to competition by removing regulatory barriers to entry,” forcing regional phone companies to open up their networks to inter-carriers. In quid pro quo fashion, this act also allowed regional phone companies to provide long distance services, unfortunately regional phone companies needed to develop a billing system, adding huge costs and delaying market entry. Ironically, as regional phone companies focused on developing a long distance billing solution and compensation solution for inter-carriers, the small inter-carriers focused on their product offering. The inter-carriers began to offer more complex bundled services (email, phone, dial-up, paging), which the regional phone companies had a difficult time billing for.
For those telecom firms whose billing systems could not scale in support of new wireless products and complex pricing requirements, the future was bleak and in some cases, ended in buy-out, merger or bankruptcy.
If similar technology revolutions in other industries are taken into account, there is no question that modernized billing capability for capital markets is a strategic differentiator. What remains to be seen is who will emerge victorious and who will be cast away while the sea change passes them by.
My previous two posts in this series provided a high-level overview of SaaS and explained the differences between SaaS and other common deployment models in the financial services industry. This final post explores how Firm58 differentiates its SaaS platform and why global exchanges, broker dealers and trading firms trust Firm58 to manage billing, deliver daily profitability reporting and strategic insights via detailed post-trade data, and ultimately improve the efficiency and accuracy of their middle and back office functions.
An Industry in Transition
There is plenty of evidence to suggest the SaaS delivery model is on the rise for financial services firms. A 2009 IDC study claimed U.S. firms will spend 45% of their IT budgets on SaaS applications and Wall Street & Technology magazine predicted 2010 is the Year of the Back Office where even the largest Wall Street powerhouses “are turning to hosted software for non-core functions.” This tech spending trend will continue into next year according to a recent report from Ovum predicting a 4.5% rise in tech spending in 2011.
From the early days of Salesforce and its ubiquitous CRM offering to email and other collaboration tools delivered as hosted solutions, more and more firms are embracing the benefits of SaaS. Beyond the economics, SaaS makes a lot of business sense. Firm58’s customers see the competitive value of differentiating their proprietary strategies, their talent, and their approach to customer service rather than focusing limited IT resources on developing and maintaining the ultimate billing, compensation, or P&L system. Those functions are not core to their business, and they can easily be outsourced to trusted providers like Firm58. Our solution is not only economical and easy to deploy, but it continues to get better, so the value to our customers increases over time.
Building a Trusted Platform
For some capital markets firms, the idea of allowing post-trade data to exist outside the company’s walls is often a non-starter. What these firms don’t realize is that many of today’s hosted service providers have undergone third-party audits to ensure their systems are secure and reliably managed. Firm58 completed a SAS 70 audit in 2009 providing verification of these internal controls and financial requirements for our clients. Today, we are proud to claim some of the largest global exchanges and bulge bracket firms as customers.
Firm58 customers own their data and always will. We protect our customer’s critical information with financial-grade security infrastructure both when interacting via a web browser or transmitting data for processing FIX connections or file uploads. All communication between a browser and the platform includes 128-bit SSL encryption, application security requiring strict password and login rules, and permission-based roles within the application configured to our customer’s specific business requirements. All file or FIX-based data transmissions are secured via private VPN connections or secure copies with certificates directed at secured, “jailed” locations. For more detailed information about our security practices, send us an email request.
In my first post, I cited one of reasons the ASP model was not successful was because “the total cost of ownership between the traditional and ASP model is nearly the same.” Essentially, ASP providers were unable to gain the economies of scale to make the costs beneficial to the customer.
SaaS solves this problem by introducing the concept of a multi-tenant application, whereby a single instance of the application runs multiple customers. Multi-tenancy allows the software vendor to reduce expenses through economies of scale and pass on the savings onto the customer.
In an industry characterized by high speed and high volume, coupled with extremely sensitive data, we had to be creative in the way we addressed multi-tenant issues in the design of the Firm58 SaaS platform. Our solution allows all customers to run in a single instance – reaping the core benefits of a SaaS model – but enabling a tunable, isolated, and secure container to ensure customer data is segregated and not co-mingled.
Firm58 has a range of customers from small floor brokers that process a 1,000 trades per day to large exchanges and banks that process millions of trades a day. Through our Managed Multi-Tenant architecture we can adjust the processing resources for each customer, similar to the way cloud service providers dynamically alter processing resources. Customers that have millions of trades per day or complex calculations and analytics can be allocated more processing power to get their work done sooner.
Finally, because our application performs billing and other post-trade functions, if there’s a need to replay a day, any customer has the flexibility to reset to a prior point in time. Our managed multi-tenant architecture achieves scalability without mixing customer data in the same database objects.
Firm58 has developed a scalable, secure SaaS platform that is uniquely suited to address middle- and back-office trade operations. We’re energized to be at the forefront of a transitioning industry as more capital markets firms move toward hosted software to manage their fees, commissions, and payouts.
My last blog about Software as a Service (SaaS) highlighted the benefits of the SaaS model versus the traditional on-premise deployment model. In this post, I will contrast SaaS with other deployment models that are common in the financial services industry, specifically the service bureau and the application service provider (ASP) .
There are several similarities between SaaS, ASP, and service bureaus deployment models. All are centralized deployment models where the hardware is managed by the software vendor in the software vendor’s facilities, rather than on the customer’s premises. In addition, customers pay a monthly subscription fee with minimal upfront fees, rather than a large upfront perpetual license fee with yearly maintenance fees.
A service bureau deployment is a common deployment model especially for post-trade (clearing) applications. Also known as facilities managed, the service provider not only hosts the application on their hardware in their facilities, but also provides resources to operate the application on behalf of the customer. This model is unique in providing resources to manage and operate the application as if they were employees of the customer. The service provider bundles the hardware and software costs along with the human resources to operate the application into one monthly subscription fee. On the surface, this model appears ideal for companies that want to outsource a solution rather than building and staffing a solution on their own, but there are significant drawbacks.
- Restricted Use “As Is” – In order to offer a cost-effective solution, the service provider restricts application usage and customizations that tailor the software to the customer business process. The customer has to accept the application “as is,” adopting the functionality and terminology of the service provider.
- Limited integration – Service bureau providers limit the integration points to the customer’s business. For example, the application may only accept trades from the service providers trading platform or only from a select few trading platforms. Service providers use to tout this as “straight through processing,” but it’s really intended to force the customer to use the service providers trading platform. Once data is in the application, service providers make it difficult to get data back out, preventing seamless integration to customer’s environment.
- Older Technology – one of the driving reasons for the drawbacks previously mentioned, is that that the underlying technology is often old and rigid. The application was not built from the ground up using leading-edge Internet-centric technologies.
Application Service Provider
An ASP is a business that began in the late 1990s as an alternate way to finance software and to leverage the providers facilities (building, network, power). In this type of deployment, the service provider hosts the application in their facilities on dedicated hardware for each client. If co-location is desired for business continuity, the customer essentially pays for two instances. ASP is similar to the traditional deployment model, except the software runs in the provider’s facilities which are often more fault-tolerant and higher performing than the customer’s facilities. The customer not only purchases a software license for the application, but also must pay for the dedicated hardware and any underlying software licenses such as a database. The service provider bundles these costs into a monthly fee paid over several years. In order to recoup the costs, the service provider often requires a 3 – 5 year contract. The service provider, in addition to hosting the application, also provides backups and upgrades to the operating system.
The customer operates the application as if it were on premise and contracts separately with a consulting firm to deploy and customize the application to their needs. Software vendors that offer their software via an ASP model typically have not designed or optimized their application to work well over the Internet or with high efficiency in order to able to house multiple customers in a single instance. Because of this, the total cost of ownership between the traditional and ASP model is nearly the same. The ASP model simply amortizes the upfront costs over several years, which is why this model is far less common today.
The emergence of SaaS-based solutions for financial services has replaced both service bureaus and ASP solutions for many capital market firms. As technology innovation continues to forge ahead and speed, flexibility and control remain high priorities for customers.
In the 3rd and final installment of the SaaS series, I’ll cover Firm58’s unique offering and address some of the more common topics that customers and prospects ask about including security, performance, co-mingling data, and disaster recovery.
Software As A Service (SaaS) is a relatively new way to purchase and deploy software that began around 2001. Made popular by Salesforce.com, this software delivery model eliminates large upfront fees and hardware investment because the software is accessed over the Internet via a web browser with no software on-premise. The software vendor is responsible for hosting the application on its hardware as well as upgrading the application functionality, backing up data, and maintaining the infrastructure (hardware, network, disks, power, building). The SaaS model has unique advantages to both the software vendor (Firm58, in this case) and our customers. These advantages are the driving reason behind Firm58′s decision to design and deploy our SaaS solutions.
Benefits to Firm58 Customers
- Reduced risk and capital costs. Recall, the traditional software licensing model where customers pay a large upfront fee for a software license and a yearly maintenance fee for upgrades and patch fixes. For desktop applications such as Word or Excel, the license fee is in the 100s of dollars but, in enterprise software, the license fee can be in the 100,000s… and that’s just to get started. Once you add an 18% annual maintenance fee on top of that, enterprise software becomes a costly proposition. It’s no wonder companies do an exhaustive evaluation when choosing enterprise software. But SaaS changed all this. In a SaaS model, customers pay a monthly subscription fee for the software license and there is no upfront fee. The elimination of large upfront fees reduces risk because much like terminating your phone, electric or cable service, if the business changes, you can cancel service. There is simply less at risk with SaaS.
- Lower total cost of ownership. In a SaaS model, the customer does not have to purchase hardware or software licenses. The SaaS vendor hosts the application in their data center and on their servers. The vendor provides the necessary infrastructure to support the service including upgrading the computer’s operating systems, providing redundant servers, network connectivity and power in the event of a failure, as well as redundant high performance disk technology to store data. In addition, most software vendors embed other software in their solution, so as to not re-invent the wheel. For example, database software such as Oracle, IBM DB2, or Microsoft SQL Server is commonly embedded into a software solution. The customer does not need to purchase a software license, because it’s licensed indirectly through the service. Keep in mind that software licenses are typically 3-5 times the cost of the hardware. SaaS vendors leverage these costs across their customers and pass on the saving to their customers.
- Improved customer service. SaaS vendors must earn the subscription fee each month or the customer may look to another vendor or simply cancel the service. With a traditional software model, the software vendor has minimal interest in making the customer successful beyond the initial license sale. Customers are reluctant to cancel their software license, not only because they paid for it upfront, but also because they own it. In order to maintain customer loyalty, the SaaS vendor must continue to offer new features, deliver a reliable service, provide good customer service, all for a reasonable monthly subscription. SaaS vendors are incentivized to continue to innovate and listen to their customers.
Benefits to SaaS Vendor
- Focused resources and best-of-breed technology. In the traditional software deployment model, when software is on premise, customers are always concerned with the underlying technology such as the database server, operating system, etc. They have to make sure they have the staff and experience to support the software technology. If not, the software vendor’s solution may be rejected. Software vendors responded by porting their software to multiple technologies, for example supporting Oracle and SQL Server or Unix and Windows. If there is an ongoing requirement to support multiple databases, multiple operating systems or other technologies, it may take away crucial development resources from developing new features. The lifeblood of a software company is to continually innovate…”…innovate or die…” is the mantra.
- Improved development velocity and support. Keeping all customers on the same or nearly the same software release is a difficult challenge for any software company. When customers install software on their servers, it’s even more difficult because they control the upgrade pace. Anyone who has worked in enterprise software knows the pain of weekend or late night upgrades. So needless to say, they are reluctant to upgrade. If a customer calls with a problem on a software release from 4 years ago, it’s difficult to provide a fix for this point specific release without requiring the customer to upgrade. For a software vendor to pull a very old release and make a fix is a very time consuming process. Part of the problem is that the release cycle in traditional software deployment is anywhere from 6-12 months. A lot changes in 6-12 months, which means a lot could go wrong during an upgrade. Whereas in a SaaS model new feature updates and patch fixes stream out every 2-6 weeks. The release cycle is dramatically shorter, intentionally shorter. Small incremental changes applied frequently, make upgrades easier and reduce the overall upgrade risk. Most importantly, it keeps SaaS customers at or near the latest release making maintenance and support easier.
These are just a handful of benefits for both the purchasers and the providers of SaaS technology. My next installment in this series will cover SaaS for financial services.
Complexity in financial markets has increased dramatically with the advent of electronic trading, expanding venue options, and diverse types of instruments. In addition, there is more data than ever before, not just in terms of quantity, but also in terms of dimension — more slices and dices, so to speak. The increase in data complexity and quantity has driven increasingly sophisticated models for calculating fees, commissions, and payouts. Companies have geographically dispersed branches dealing in numerous markets and across diverse product lines. As a result, these firms end up with complicated schemes for figuring out what they owe and to whom, as well as what they earned and where they earned it. On top of all this, companies today, like consumers, expect information to be available at the click of a mouse.
As the Director of Product Management at Firm58, I’m always on the lookout for new ways to improve the flexibility of our software in keeping with our mission to manage fees, commissions, and payouts with solutions that set the pace for our industry. One way we do this is with a new feature called Logical Expressions. Logical Expressions allow our customers to represent multi-layered structures of conditional expressions that determine which trades will get rated by a particular rate scheme. Logical Expressions route trades as they enter our software to ensure that fees, commissions, and payouts are calculated accurately.
Virtually any type of granular data can be used in a Logical Expression. For example, the data points may include a trade’s asset, the liquidity type, the trader, the quantity, the price, the clearing firm, or the exchange. In fact, Logical Expressions support more than 170 out-of-the-box trade attributes. In addition, the feature accommodates data from Firm58’s new Flex Values functionality, which means that virtually any information our customers send us can be used for routing via Logical Expressions.
Here are just some of the capabilities of Logical Expressions:
- Inclusive or Exclusive Logic determines if a particular calculation applies when the condition is true, or when it is not. For example, a condition may be true when the exchange is NYSE, or when the exchange is any exchange except NYSE.
- Nested Expressions combines groups of sub-expressions on an “if any of these are true” or an “if all of these are true” basis. For example, a condition may be true when the exchange is NYSE or NASDAQ or Boston Stock Exchange, or it is only true if the exchange is NYSE and the trade adds liquidity.
- Matching breaks apart symbolic information and applies logic based upon wildcard pattern matching in key financial data variables. For example, a condition may be true when the asset symbol is IB*, which would match IBM, IBN, IBKC, and so on.
- Natural Language Expression translates each logical expression into an English-like statement automatically for easy verification and troubleshooting.
Want to learn more about how Logical Expressions and Firm58’s rating engine can help you streamline your company’s calculation of fees, commissions, and payouts? Fill out the contact form at the bottom of this page.