This article was originally published on TabbFORUM.com on August 5, 2013.
For many years, financial services clients have turned to extranets to help them connect to other members of the financial services community. While this legacy approach has brought benefits, the time has come for an alternative.
Extranets “provide robust, scalable communications to members of the financial services community,” according to TABB Group’s report, Financial Services Extranets: Connecting a Fragmented Trading World. These members include:
- Banks, Insurance Companies, Fund Managers
- Proprietary Traders, Brokers, and Exchanges
- Information, Market Data, and Analytics Firms, and
- Order Execution, Clearing, and Settlement Providers.
With the minimal capital investment, extranets enable market participants to reach their clients, markets, and service providers.
The Problem with a Legacy Approach
As connectivity has become a commodity, however, ongoing challenges with legacy extranets have become increasingly frustrating to users. The industry’s most common complaints:
- Providers don’t understand our business;
- Provisioning is slow, which delays revenue from new clients and strategies;
- Pricing is high for relatively low bandwidths (one legacy provider quoted $600 per month for 64kbps!).
The underlying challenge is that legacy extranets are stuck with maintaining proprietary switching centers, copper, and dated equipment technologies. That’s expensive and slow, and the high costs and delays are passed onto customers.
Also costly is the people time on both the legacy-extranet side and the customer side of negotiations; yet, customers know they must negotiate. A recent study showed a price reduction of more than 60% after a week of negotiating with legacy providers.
A Revolutionary Approach
Fortunately, a new day is dawning. Listening to customer demands, new-alternative providers have:
- Developed a deep understanding of the Financial Services business;
- Accelerated provisioning, by providing transparent pricing and online ordering;
- Implemented lean architectures, built on “supernodes”* with leading-edge equipment and fiber;
- Provided “everyday” low and distance-insensitive pricing (i.e., $400 per month for 100 Mbps, regardless of distance).
(*Note: Apcela coined the term “supernodes” to describe backbone transit nodes within highly interconnected, third-party, carrier-neutral data centers run by leading companies such as Equinix, Telx, CoreSite, and SunGard.)
A few use cases that would effectively utilize this new approach in financial services include:
- Big Data. Moving Big Data to affordable, remotely located server clusters is painfully slow at 64kbps – not so at 100Mbps.
- Hungry Clients. Addressing clients’ requests for higher bandwidth connections quickly eats into profit margins and technology budgets at legacy prices – not so at revolutionary prices.
- New Regions. Connecting to new trading partners or service providers in new regions is prohibitively expensive when the distance is a driver of pricing – not so when the price does not vary with distance.
The need for inter-company connectivity is not going to go away, but the time is nigh for an alternative to legacy extranets. The time to respond to clients’ frustrations has come.