What's Going on in Brokerages in times of Covid

Stuart Tarmy, Global Director, Financial Services Industry Solutions Blog, Business

The volatility of the stock market caused by the pandemic’s economic fallout has led to an incredible surge of trading by both experienced and new investors looking for financial opportunities. This year, these investors drove a second-quarter retail equity trading volume to skyrocket more than 50 percent from the first quarter.

Unprecedented challenges for online brokerages

While more people jumping into the market is good news for online brokerages – especially when so many  industries are barely surviving at this point – this tsunami comes on top of several unprecedented challenges for online brokerages. Among them:

  • Work-from-Home challenges – The ongoing threat of the pandemic means more workers are being shifted to work from home, increasing the need for enhanced security and greater reliance on WFH tools like online education and training.
  • Move towards mobile – Branches are being closed, driving an even greater move toward mobile apps.
  • Revenue stream adjustments – Brokerages are offering zero-cost trades, forcing them to consider other revenue streams or cut more costs.
  • Greater personalization – A push toward greater customer personalization in an effort to stay competitive means there is a greater need for reliable and scalable analytics and recommendation engines.

Rise in Fraud

At the same time, those in the finance industry  are being tested by rising online fraud.  According to a study commissioned by FIS, brokerage account fraud is on the rise, increasing to 10% of all non-credit card fraud in 2018, up from 7% in 2017.  Increased brokerage and retirement account fraud “will require the development and adoption of next-generation fraud mitigation strategies,” according to Jim Johnson, president of payments and wealth, a division of fintech company FIS.

All of these challenges mean that it’s important to have a strategy that will enable an organization to be flexible enough to respond to worldwide volatility while also providing the stability necessary to address current and future opportunities.

Impetus for Change

These challenges are pushing companies to look for technology solutions to help them not only adapt and remain competitive, but for the market leaders and more forward-looking companies to use this as an impetus to gain market share and improve their market competitiveness.

The solution for many financial services companies like Schwab is Aerospike when they are looking for technology solutions to enable the fastest execution speeds, analytics or real time customer experience (sub milliseconds) over extremely large datasets (100’s of terabytes to petabytes).

Ways Brokerages can benefit from Aerospike

Here are some of the ways that online brokerages can benefit from Aerospike’s NoSQL data platform:

  1. Greater reliability. While it’s not unusual to have a website slow or even have an outage when volume spikes, it is uncommon to have simultaneous outages among several brokerages, as happened in late August when customers flooded to online trading when both Apple and Tesla stocks split on the same day. Aerospike offers five-9’s of uptime, with multi-site clustering and strong consistency to ensure data is accurate across the enterprise and can scale easily – key factors when online brokerages are being flooded with new customers and record transactions. Consider this: Since the pandemic began in March, some 780,000 people have created new brokerage accounts at the top three largest brokerages in the U.S. As more brokerages encourage customers to shift online, the demand for reliability will grow and be even more important in order to keep existing customers satisfied.
  2. Better security and fraud prevention. As mentioned earlier, WFH arrangements present ongoing challenges to employers, and security is front-and-center when it comes to concerns about employees not being in an office environment.  The concern is so great that the FBI warned in April about the increase in schemes that target business email, especially “anyone who performs legitimate funds transfers.”  Breach Clarity Co-founder and COO Al Pascual says that as “cybercriminals experiment with new forms of cyberscams, newly remote workers and the systems to which they are attached will be a high value target. During inevitable security breakdowns, criminals will gain access to a wealth of personal information.” With Aerospike, there is vetting of inbound business transactions to provide real-time risk assessment and decisioning. That’s vitally important when a fraud prevention application has to review a user profile, test the request against rules or algorithms developed by data scientists and make a “yes” or “no” decision to allow the trade in about 750 milliseconds.
  3. Lower TCO. Even with the influx of new customers, online brokerages are looking to reign in or cut costs during these volatile economic times. For example, Schwab reports it will close 53 of its 339 U.S. branches – or 16 percent of its offices – as part of its effort to cut 5 percent of the company’s annual cost base and encourage more customers to move online.  With Aerospike, companies typically  experience a significantly lower total cost of ownership (TCO) because of an extremely efficient architecture that utilizes a hybrid memory architecture and dynamic cluster management for optimal efficiency.  The result: an improved performance where some clients have seen a cost reduction of 10x  of their existing solutions.
  4. Neutrality. Many brokerages are moving to the cloud, but don’t want to be beholden to any one provider. Consequently, they may move 80% of their business to one cloud provider and 20% to another.  In addition, companies will often keep some of their applications on premises because 1) they either contain sensitive or proprietary information they don’t trust to the cloud, or 2) they are older, legacy or undocumented applications that are too difficult to migrate or support in the cloud. This results in brokerages using a hybrid model.  Aerospike  is ideal for this scenario because Aerospike is technology agnostic – it allows companies to operate across all platforms and architectures.
  5. Speed. As more data is collected on customers to be better able to offer recommendations and customized experiences, companies cannot become so bogged down in all that data that it adversely impacts the user experience. Aerospike is the fastest solution with sub 20 millisecond response rates across terabyte and petabyte data sets. It enables organizations to run their analytics and personalization engines significantly faster to serve more customers faster, with better results and greater customer personalization and engagement.

In Conclusion..

Whether it’s a concern over fraud and compliance, a need for faster response times, increased analytics, personalization or user experience, or merely a desire for lower total cost of ownership (TCO), Aerospike offers the solution that enables  organizations to adapt and thrive during these challenging times.

Learn More

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About Author

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    Stuart Tarmy, Global Director, Financial Services Industry Solutions

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    Stuart is Global Director, Financial Services Industry Solutions for Aerospike. He has over 25 years of experience as a General Manager and head of sales, marketing and product management for leading global financial service technology, ecommerce, payments, AI/ML, data management and predictive analytics (Big Data) companies. He has held senior executive roles with Fiserv, Albridge Solutions (acquired by Pershing/BNY Mellon), MasterCard, and McKinsey & Company. Stuart began his career as a design engineer at Texas Instruments developing machine-learning based computing systems. Stuart holds an MBA from the Yale School of Management, a MS in Electrical Engineering from Duke University, and a Sc.B. with Honors in Electrical Engineering from Brown University.