Broadridge is helping to drive a fintech evolution, not revolution
What does fintech conjure up for you? A few wizkids in a co-working space with little more than a shared startup dream? Futuristic robots dishing out stock tips? Algorithms quoting realtime insurance premiums? Or shadowy cryptocurrencies with their promise of a cash-free future?
Whatever it is, Broadridge may seem an unlikely poster child at first glance. Tracing its roots back to the decidedly analogue 1960s, the U.S.-listed company has a market capitalization of more than US$11 billion and brings in over US$4 billion in annual revenue. Over the years, investor communications has remained the largest component of its global business – of which proxy-voting services make up the bulk. And while these are increasingly digitized and unrecognizably more streamlined than those of old, helping companies and investors with their paperwork hardly sounds the stuff of fintech dreams at first.
But think again, says David Becker, Broadridge’s Asia-Pacific head, who describes the company as a “fintech grown-up.”
And thinking again, it does seem likely we’ve been misled by years of headline-grabbing hype around startups and disruptive technologies. The fintech revolution was never going to be, well, revolutionary. It was always going to be more about managing the transition to disruptive technologies without pulling the legs from under the world’s financial system.
“We tick all the boxes as a fintech player,” Becker says. “We continue to earn our clients’ confidence every day by delivering real business value through leading technology-driven solutions that set the standard for the financial services industry.”
Grown-up fintechs build bridges; they don’t blow them up.
An interesting coincidence, then, that Broadridge Financial Solutions began its transformation into a fintech leader after it was spun off from ADP in 2007. The company’s shares began trading on the New York Stock Exchange on April 2. That was also the day New Century Financial, one of the biggest U.S. subprime mortgage lenders, filed for bankruptcy – a harbinger of the global financial crisis to come.
The financial market meltdown led to the reworking of global rules that have piled on regulatory and compliance costs for banks and other financial institutions already struggling to deliver pre-crisis profitability amid stubbornly low interest rates. At the same time, rapidly evolving technologies have created both the potential for huge gains in efficiency, transparency and security together with some possibly existential and poorly understood new threats.
Unlike North America or Europe, the Asia Pacific region has multiple regulatory regimes that don’t really coordinate with each other, which means financial institutions have to navigate all of them on their own. It also means an environment exists with greater scope for innovation and disruption.
Given the systemic importance of the finance sector, it makes sense that fintech solutions must prove themselves both sturdy and trustworthy before they can be widely adopted. That hands an advantage to companies such as Broadridge, which has built ties over decades with market regulators and many of the world’s biggest financial firms and has a proven track record of implementing new technologies.
Just as Google started life in 1995 as a system to rank pages on the internet and Amazon began the same year as an online bookstore, both growing on their ability to massively scale up and diversify their businesses, so too with Broadridge’s technology platform.
After the 2007 spinoff, the company quickly expanded its offerings in electronic voting platforms, tax services, business-process outsourcing, mutual funds and retirement solutions. It extended global securities processing into major European and Asian markets, and has grown to offer data management, mutual fund processing, and fee and expense management services. The company now processes about 2 billion investor communications each year, with more than 95 percent of all cross-border proxy voting moving through Broadridge. “In short, we provide the infrastructure that helps the financial services industry operate,” Broadridge says in its annual report. “Our Global Technology and Operations segment keeps getting stronger. Our clients continue to face pressure to reduce both cost and complexity of their operations and they see Broadridge as a partner who can help them achieve that goal”. In June 2018, Broadridge shares were added to the S&P 500 index, a great recognition of its strong track record of execution and value creation as a fintech leader since becoming a public company.
A perfect storm…
The company provides “a tech stack of different functions that are covered by one underlying infrastructure,” Becker says. “The market is transforming with the confidence that they can outsource, and they can mutualize in the sense of having one large global vendor that can support multiple clients.”
For banks and other financial services companies, outsourcing their mid-to-back office functions helps them to spend more on front-office activities around digital banking, “and at the same time get off some pretty old legacy technologies,” Becker says. “It’s a bit of a perfect storm for us right now.”
As financial institutions look to transform and mutualize their mission-critical but non-differentiating back-office functions, Broadridge is the only player with the proven technology, scale, innovation, experience and, most importantly, the clients to achieve this and meet their needs.
Take Japan, which provides more than half the group’s Asia business. After decades of recession, the country is showing some signs of recovery, with record earnings at major banks. “Regulatory changes are probably what’s driven our growth the most,” Becker says, citing Japan’s move to shorten the settlement time for Japanese Government Bond trades by a day – from T+2 to T+1.
Financial institutions were looking for off-the-shelf solutions and to outsource at a lower cost than they could provide in-house. Broadridge was on the ground and had products ready to market – as well as a platform offering global connectivity, he says.
“When the foreign banks look at their domestic requirements for Japan they’d rather go with the same standards that they’re using in New York, London as much as Tokyo. And increasingly that’s true for the Japanese banks.”
As for the future, Broadridge has invested heavily into developing blockchain solutions for investor communications and trade processing.
“The glamorous part clearly is whether it will change the whole monetary system of the world,” Becker says. But in reality adoption of blockchain – or distributed ledger technology – will depend on its ability to remove “bread and butter operational inefficiencies.”
“This is an underlying new technology that is trying to resolve some of the smaller problems as well as the dramatic, paradigm-shift changes in the market,” he says. “Arguably, the real advantage is in cost reduction… If you flow it through, those savings can go all the way back to the investor and encourage more growth in financial market trading.”
Broadridge has already developed patents and is teaming up with major financial players such as JPMorgan, Banco Santander, Northern Trust and Societe Generale in pilot programs for blockchain-based proxy voting and repurchase agreement transactions, “providing a secure record of repo trade details, reducing the need for reconciliation and removing obstacles to straight through processing.”
The company is also a key investor in Digital Assets Holdings, which ASX engaged to build a distributed ledger technology-based post-trade clearing and settlement platform for the Australian market.
“Because it’s a relatively small market and somewhat contained it’s a good testbed. But I think it could set a benchmark for the success of DLT in the financial space,” says Becker, an Australian who previously ran Thomson Reuters Financial and Risk division in the region.
“In theory, I would see that roll out to Singapore, Hong Kong, Japan. I think even the European and U.S. markets are watching it,” says Becker.
Given the trillions moving between global markets every day, long-held investor demands for certainty and stability appear to still be ringing true for Broadridge as new innovations like blockchain are beginning to move into production during this most recent round of financial evolution.