5 Financial Institutions That are Actually Data Companies

Hello, it’s Rachel Carpenter, the CEO of Intrinio. We’re a financial data company, and we’re going to talk a lot about data in this article. 

Did you know that over $2.5 quintillion bytes worth of data are generated every single day? Today, we are surrounded and influenced by vast amounts of data: personal, corporate, healthcare, environmental, stock, crypto, and even interstellar data.

As the data economy explodes around us, it gets harder to ignore the fact that every business (and person) is actually a “data” business. Identifying, harnessing, and putting your company’s data to use is a challenge but offers tremendous opportunities for those who rise to meet it.

Companies operating in the financial industry, specifically capital markets, are unique cases. Many have made their money off core services like banking, conducting research, or serving as a medium of exchange. However, the true power of these businesses lies not in their core services, but in the data and exhaust that is created by them. 

Financial service institutions are unique in the volume and value of the data they create. This makes a particular set of financial institutions poised to monetize their data and make it a core part of their operations. Those that prioritize and execute well may see data usurp their traditional lines of business.

Why does this matter? The global data and analytics market is worth $274 billion, and it's forecasted to grow by another $100 billion by 2027.

At a time when many traditional financial institutions’ core business models are increasingly threatened by regulation, competition, fintech, and blockchain, pivoting towards a massive and rapidly scaling industry is enticing.

In this article, I outline 5 traditional institutions that, whether or not they’ve realized it are actually data companies at heart.

1. Stock Exchanges

Nasdaq, Nyse, CBOE, IEX, MEMX, and dozens of other exchanges in the U.S. and around the world run massive and critical infrastructure and operations to ensure trading and capital markets run smoothly. 

Most of the attention goes towards these exchanges’ “listing” business, working with up-and-coming companies to do a public offering and list their company on an exchange. The actual “listing” process, however, pales in comparison to the data side of the exchange business.

Every time a transaction happens on a stock exchange, a “price” for a security is created, and this exhaust transforms into powerful, mission-critical data sets used by investors globally. The bundling and distribution of these data sets can result in billions of dollars of revenue for exchanges annually.

Most of these exchanges are well aware that they are truly data companies and have started to act on it by creating sub-branded data platforms. Nasdaq acquired Quandl and launched Data-Link. The London Stock Exchange acquired Refinitiv. IEX launched IEX-Cloud, and CBOE runs its own “Data Shop”.

These new stock-exchange-data-platforms are fairly nascent and lack the sophistication and modernity of traditional data platforms. More robust data strategies with special attention to innovating around monetization and distribution can turn these traditional stock exchanges into modern data powerhouses. It can also help them diversify their revenue and avoid a complete meltdown as regulation creates more competition and blockchain starts to threaten their competitive position.

2. Sell-Side Banks

While investment research-oriented firms don’t generate stock price data like the exchanges, they create their own flavor of valuable exhaust.

Across the U.S., tens of thousands of analysts crunch numbers into spreadsheets and make predictions about the stock market every day. In many cases, this research floats around inside of these banks completely unmonetized.

In other cases, rapidly scaling companies like Visible Alpha and SmartKarma have noted the value of this data and developed software solutions to more effectively collect and disseminate this data in collaboration with top banks and analysts.

One of the more popular flavors of this exhaust is estimates data, but analyst research is a treasure trove of quantitative insights. These data sets, and the demand for them, highlights the growing power and value of the crowd, which is not always limited to the confines of major banks.

For example, disruptive entrants like TipRanks sell “blogger ratings” and have conducted studies that show these bloggers more successfully predict stock price movements than traditionally trained analysts.

In the future, expect to see rewards, incentives, and gamification enter the fold to incentivize the crowds and balloon the volume of insights generated from this exhaust. Banks and estimates-focused software companies have an opportunity to expand their identities past the generation and assimilation of estimates data. They can leverage this expertise to think and behave more like holistic data platforms, taking their own swing at the billions of dollars waiting for them in the data and analytics market.

3. Database Companies

Another class of unwitting data companies includes the firms focused more on the infrastructure supporting traditional data businesses. There’s gas, but it’s nothing without the pipes and plumbing.

Snowflake emerged on the scene as a powerful, exciting new tech company with a successful IPO in 2020, and the market has since been abuzz with Snowflake’s multi-cluster shared data architecture. Shortly after their public offering, Snowflake started to prioritize and promote their data marketplace which now offers hundreds of data products.

AWS, another critical database services provider to most financial services firms, has been heavily investing in building out their own data exchange over the past few years. This platform now has over 6,000 data products, and Amazon is taking a major interest in financial-specific data.

Snowflake and Amazon are banking on the fact that most data consumers also need to use database services. Providing data alongside those services can be a major value add in an industry where data providers are scattered and numerous. Becoming a go-to source of data may also help these companies increase adoption of their own core technology. It’s a natural progression for database infrastructure companies to identify the data itself as a valuable product to capitalize on. 

Many important questions arise out of this analysis:

• Do the financial data companies need AWS and Snowflake more than these database companies need them? 
• Is it reasonable to expect one or the other to replicate the other’s business in a long enough time frame? 
• What’s easier, adding data sets as a product or building your own infrastructure?

As the power dynamic between data and database companies unfolds, and as database companies recognize the power of the data flowing through their pipes, we may see consolidation or intense competition.

4. Crypto Exchanges

Recently, it has not been a great time for crypto exchanges. Following FTX’s massive insolvency and resulting bankruptcy, it feels like crypto is having its “Lehman Brothers” moment.

It’s certainly true that blockchain and cryptocurrencies have taken their ride up and down the Gartner Hype Cycle Curve. But while there will always be graves in the graveyard of emerging tech, I still believe heavily in the long term applications and staying power of crypto exchanges that learn from these lessons, maintain transparency, and work with regulators.

When others are flocking away, I get interested. The remaining exchanges have the chance to do things differently and emerge as industry leaders. And just like the traditional exchanges we first covered in this article, these rapidly scaling crypto exchanges also generate a whopping volume of price data. 

Of course most of the attention is going towards their core exchange mechanics, and not the billion dollar ‘ancillary’ business they could be expanding upon. The sheer number of coins on the market, coupled with the recent explosion of retail trading, has created a massive volume of trading activity in this space.

The jury is out on the viability, demand, and revenue potential from crypto pricing feeds, but that is not what gives Crypto Exchanges the potential to become wildly valuable data companies.

These new exchanges have the luxury of building from scratch in a post-blockchain world, while traditional exchanges do not. This creates a massive competitive advantage and an ability to disintermediate the traditional securities space from exchange, to brokerage, clearing, custody, data, and more.

Crypto and blockchain-based exchanges have first mover advantage and a major technology edge through blockchain. In theory, their blockchain base takes care of exchange, brokerage, custody, clearing, and even data! By thinking more holistically about themselves as data companies, crypto and blockchain companies can start to branch into other asset classes and start to disintermediate the multi-billion dollar institutions currently running the show.

FTX US (who is, as of now, unaffected by the collapse of FTX) recently made an investment into the traditional exchange IEX and has launched a new “stocks” focused platform. This is a great first step in capitalizing on their advantage, but the longer-term value lies in data and their ability to develop a robust data strategy.

The exchanges that start thinking of themselves as data companies and envisioning the possibilities will inflict formidable, disruptive change upon the traditional investment process and financial data industry.

5. Mutual Fund Providers

Invesco, Fidelity, Vanguard, BlackRock, and dozens of others have built respectable and profitable businesses around the construction and sale of mutual fund and ETF products. These products create their own “data exhaust” like the others in this list, in the form of Net Asset Values (NAVs), holdings, and more. Typically, these originators of the mutual fund products, and therefore data, send the data to companies like Morningstar for free. Morningstar then aggregates the data and sells the bundled product to interested investors, including the original contributors of the data.

The companies that send their data to aggregators like Morningstar for free have to buy the consolidated mutual fund data feed right back from them. Most of the companies we’ve covered today are creating data by means of “exhaust”, and are, at the very least, making some money from it.

Stock exchanges sell real-time pricing feeds. Investment Banks collaborate with tech providers to distribute their estimates data. Database companies like Snowflake take a cut off of data sales from their marketplaces. Crypto exchanges distribute publicly, at the very least, crypto pricing feeds and could charge if they wanted to.

For Mutual Fund providers, however, data is an asset and an expense for them, instead of an asset they are generating revenue from.

There’s no simple solution to switching the paradigm from an expense to a revenue generator. Still, mutual fund providers have a significant opportunity to flip the script and become some of the most valuable data providers in the industry.

To Conclude

Okay, we just covered 5 financial institutions that are actually data companies:

1. Stock Exchanges 
2. Sell-Side Banks
3. Database Companies
4. Crypto Exchanges
5. Mutual Fund Providers

As the lines between who is an exchange, a bank, an investment firm, or a data company continue to blur, we will witness a profound transformation in the fintech space. This illustrates how valuable it is for all businesses, even outside of traditional financial services, to take an interest in data and find a way to include it in their business strategies.

We raised quite a few provocative questions today:

• Will traditional stock exchanges be able to pivot their strategies into data before regulation eats away at their core revenue?
• When will the power of the crowd and the individual investor take over the sourcing of traditional estimates?
• How will the power dynamic unfold between the Snowflakes of the world and traditional data providers?
• How far into traditional securities trading will crypto exchanges branch?
• How can mutual fund companies turn their data assets from an expense to a revenue generator?

Only time will tell, but we’d love to hear your thoughts. So, please feel free to contact us so we can discuss this more!

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