Big Financial Firms Embrace Data's Evolution Revolution

Cloud computing, social media, and other trends come to the fore.

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The New York Stock Exchange—now known as NYSE Euronext—is a quieter place today than it was 10 years ago, now that trading goes on inside hand-held devices rather than in the crowd of specialists on the trading floor. On Main Street, deposit and withdrawal slips are disappearing from the teller lobbies at the branches of many large commercial banks. Paper, it would seem, is out. Digital data is in.

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Its part of a pan-industry phenomenon known as straight-through processing, or STP, which surfaced in the securities industry 20 years ago, when equities traders first began migrating from phones and paper to trading screens. Over time, fax machines fell silent as well, and automated trading took hold from execution at the front end to settlement at the back.

Today, automation has moved beyond the paper-versus-digital conundrum to an inexorable migration to the Web and Web-based functionality, including crowdsourcing, social media, and cloud computing.

Three firms profiled by U.S. News as the "Most Connected Companies" in financial services are examples of all three. They run the gamut from Allstate's experiment using crowdsourcing—the practice of outsourcing tasks to a broad, loosely defined external group of people—to improve the models it relies on to forecast injury claims, to the Morgan Stanley Smith Barney merger that led to a firm-wide migration to social media, standardizing access for some 17,000 financial advisers.

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Many observers think security concerns about cloud computing will prevent large scale firms from completely embracing the cloud anytime soon, but that's where the arms race for speed and data size has landed Citi. They're dealing in petabytes now, but want to be in exabytes in the future. The average bank transaction takes 500 miliseconds—Citi wants to be in the micro and nanosecond range.

Antonio "Yobie" Benjamin, chief technology officer at Citigroup's Global Innovation Labs, who discusses his firm's cloud initiative, isn't buying the cloud paranoia. Just don't fudge security, which, to Benjamin, invariably means transacting in a public cloud. "If you have a public cloud," he says, "Don't talk to us."

The endgame in this evolution should occur when straight-through processing links to big data and social media, moves to the cloud, and lives happily ever after. Not that there won't be hiccups along the way.

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For one, there's still all that paper. Insurance claims adjusters may bring hand-held devices to accident sites to catalogue damage, but that doesn't stop information from being transferred to a paper claim form. The speed with which trades are delivered to exchanges has approached the speed-of-light barrier, but in back offices, trade settlement lags execution. For over a decade, the settlement cycle has been stuck on T+3, or trade date plus three, meaning that it takes three days for a stock sale to go through after a trade has been executed.

New technologies may be able to close the gap, but they haven't done it yet.

Morgan Stanley