Tuesday, August 5, 2014

Financial Chat War

[Financial chat systems are an anti-competitive tool?]

Just as John D. Rockefeller locked in customers and shut out competition by controlling the rail network in the early days of the oil industry, closed financial chat networks are used by financial platforms to lock trading floors into overly expensive systems and shut out competition.

As with consumer chat apps, like WhatsApp and Viber, traders and brokers on trading floors use chat systems to communicate in short bursts – sending transaction inquiries, prices, and interesting news stories to each other.

These financial chat apps can come bundled with full financial information platforms, like Bloomberg and Thomson Reuters, or can, as in the oil and equity markets, be like Yahoo Messenger – where the same app that is used by consumers is used for trillions of dollars of oil and equities trading each year. All of these chats are recorded and monitored by compliance departments. 

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Going Viral with a Vector 
At a time when the cost to deliver financial information platforms is collapsing due to technology advancements, these savings are not passed on. The price of some of these platforms creeps ever higher to around $25,000 per year per individual. The ability to push through price increases and withhold cost savings requires an inability of customers to switch.

As chat networks are the ultimate ‘stickiness’ factor on desktop or mobile devices, expensive financial information platforms put a lot of effort into using entire market information platforms as a gateway onto a desktop for the Trojan Horse of a chat app.

Success for financial chat applications is dependent on getting on the desktop, and then getting turned on automatically every day as default components of full platforms.

Unlike consumer chat apps, it is much more difficult to make financial chat apps go viral. Getting any software onto a financial professional's desktop usually requires passing several gatekeepers. To address this, entire market information platforms sell themselves to traders as a utility for data and news, and then out of convenience traders begin using the chat system. Then after a trader has 5-25 connections on chat, the trader is stuck without the ability to easily change financial information platforms.

What to do? 
Several banks are trying to break their usage of chat. However, the challenge of launching a new standalone financial chat product is not the technology, which is somewhat trivial – it is getting on a desktop and getting a user to run it (whether they intended to or not) automatically each morning. Becoming part of a user’s daily routine is key.

Some banks are investing in a standalone financial chat app. The purchase of Perzo by Goldman Sachs brought this to the fore this week. There is also an Open Federated Chat initiative led by a few market information systems.  However, the hosts of Open Federated are platforms costing also a huge amount per month to have information plus the chat.  There are several other chat systems start-ups all plying low cost encryption, and building walls against government snooping as the end goal. Defense against unwarranted and illegal government search is a valid goal, but it doesn't solve the problem at the core of the chat issue.

These standalone chat apps face the same challenge as every other system in first, getting on a desktop, and secondly, in having the user run the app each morning.

Maybe instead of using standalone chat apps to break financial chat systems open, entrepreneurs should instead focus on more open and less expensive financial platforms, which also have open chat. We at Money.Net believe that this is the model for future success.

In summary, financial platforms have become too expensive and financial markets are looking for alternatives by dancing around the edge with partial solutions, such as chat, to the core problem.  Instead, we should address the issue directly by passing on technology advancement savings to deliver lower cost and more innovative financial information platforms.  Open chat can be a part of this larger better solution.

We at Money.Net are the solution.  A complete fine platform with open chat integrated with everyone for a trivial cost per month.  Get it for everyone.

Morgan Downey is the CEO of Money.Net. Prior to Money.Net, Morgan was Global Head of commodities at Bloomberg, LP. Morgan managed development of the Bloomberg Professional terminal. At Bloomberg, Morgan used his market experience to build a suite of revolutionary, unique, and innovative products. Before Bloomberg, Morgan spent 15 years running trading desks, as manager and head trader, for banks including Citibank, Bank of America and Standard Chartered, in the US, UK, Australia, and Singapore. Morgan is the author of the book 'Oil 101', a best-seller explaining the oil industry. Contact morgan@money.net
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