vendors places significant strain on internal resources. Ultimately, investment banks need to avoid creating additional application layers and work to become more agile in order to integrate fintechs and transform the IT architecture uninhibited by legacy issues. The agile method delivers iterative, minimum viable states that continue to communicate with the existing infrastructure and allows for gradual migration to the new platform. Agile involves rapid prototyping to identify use cases and develop solutions that help a company adapt its IT operating model more quickly. Developing Industry Standards. Although CM players can play a significant role in developing common assets, regulators can act as a catalyst for technological innova- tion by promoting standardized solutions. For instance, the European Securities and Markets Authority decided to use International Securities Identification Numbers as identifiers for derivatives under MiFID II in order to expedite implementation. The industry is still grappling, however, with a common standardized approach for describing all facets of the CM universe, such as reference data for distributed ledger technology, given the complexity of the financial instruments, entities, and processes involved. Improving Collaboration Among Industry Players. Governance frameworks within industry-owned fintechs can foster better collaboration among industry players, increase adoption rates, and promote goodwill on the part of incumbents because they have a stake in ensuring their fintech partners’ success. In addition, initiatives such as Project Neptune, launched by a group of banks and investors to facilitate the exchange of fixed-income inventory information among participants, demon- strate the benefits that accrue to both the sell side and the buy side as a result of unifying their efforts. Indeed, the current lack of interoperability and open innovation among fintech and CM players hinders new business and sourcing models. The adoption of open inno- vation principles can drive cocreation across firms by combining enterprise assets Reducing the risk of in new ways. Some of these assets could be monetized by individual firms. Applica- working with vendors tion programming interfaces (APIs), for example, have become a prominent feature will be critical to drive of the digital economy and constitute a core capability of technology leaders such innovation. as Uber, Twitter, Google, and Facebook. Moreover, third parties can develop appli- cations that leverage enterprise assets though APIs, thus connecting firms, develop- ers, and end users. CME Group, for instance, has partnered with Dwolla to make real-time margin payments on behalf of CME’s customers. Mitigating the Risks of Working with Vendors. The advent of multiple startup firms supplying solutions to the market has led to the perception of an increase in risks when working with vendors. Reducing these risks will be critical for the industry to drive innovation. At the same time, in light of regulatory capital constraints, the appetite for operational risk has diminished. For fintechs, many of which have yet to attain the necessary maturity to displace es- tablished practices, knowing how to build solutions that both minimize integration costs and enable the firms to work alongside other industry vendors in a seamless manner is crucial. Fintech clients will need to analyze and mitigate both contractu- al risks and operational risks, such as reliability and security. To help in these areas, The Boston Consulting Group 13