A new report from McKinsey shows that the financial data and markets infrastructure industry is thriving and has been since 2018. Analysts say, though, that disruptions are on the horizon.
Financial data and markets infrastructure, or FDMI, institutions service the financial sector and include anything from exchange groups and data companies to trading technology and software businesses. McKinsey declined to share the names of any of the companies it analyzed for this report, but this category generally includes Markit, Bloomberg, Factset and Thomson.
The sector is among the fastest growing segments of financial services and has proven to be a profitable one: Revenues have grown globally at an 8% compound annual rate since 2018, leading to an excess of $278 billion in 2023. The total shareholder return from January 2019 to December 2023 was 17% – 70% higher than the broader financial services sector, according to the report.
Trade execution and post-trade services composed the bulk of FDMI revenue – 42% of the total – it was followed by technology services at 30% and information services at 28%. Revenue growth, McKinsey found, has been the primary factor behind shareholder returns.
The growth hasn't gone unnoticed though. Fintechs are taking on a greater share of the space and large tech companies have shown interest in the market and have begun to expand beyond technology and cloud and toward partnerships with companies already participating, said Rushabh Kapashi, one of the authors of the article.
"When you think of fintechs, you might think of them focused on consumer finance or payments, but there's also a very burgeoning ecosystem of fintechs focused on capital markets and more B to B finance, as opposed to just B to C finance," Kapashi said. "You've also increasingly seen a number of fintechs because of the performance of the space, that the intrinsic attractiveness of the sector, other firms have also or are trying to explore ways in which they can participate in this space."
One of the largest entrants into the sphere are big tech companies, Kapashi said.
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"Big tech is one of the more prominent institutions, where they have embarked on a series of strategic partnerships with a number of the infrastructure providers, where the partnerships, if you look at the press releases, go beyond just purely cloud provision," Kapashi said. "It's much more also around business building and so that also has been an interesting theme to look at." Kapashi declined to share any examples.
The report states the "new market participants are currently partners but may, over time, become competitors."
Another aspect is technological innovation. As technology advances, particularly around generative AI, it helps advance existing companies but can also be disruptive. In the FDMI sector in particular, Kapashi said, Gen AI provides opportunities for growth in revenue and productivity.
Matthieu de Vergnes, who also worked on the report, agreed that technology and AI will be major disruptive forces but also a source of opportunity.
"In particular, as stated in the article, there's a category of these players that are technology providers," de Vergnes said. "So the question to them is, how can they provide Gen AI and AI solutions to the ecosystem? It can be via the data products but it can also be what is their solution that will enable other institutions to benefit from Gen AI?"
These factors, combined with lagging sell-side and buy-side revenues have made it imperative for the FDMI market to stay nimble by both bolstering its value as well as finding other consumers.
"Our research suggests that while the buy-side will continue to grow, the growth of that segment may slow down. And so, they will need to have other sources of growth to pick up some of that," Kapashi said. "So while it will continue to grow, the growth rates of the past may not be replicated in the future and they need to find separate sources of growth."
The article was released by McKinsey under the title "Financial data and markets infrastructure: Positioning for the future." Anutosh Banerjee, Laura Heaphy and Promila Gurbuxani also contributed to the report.
