In this article, we mention several third-party companies. It's important to clarify that Dimensional Community is not affiliated with any of these entities. Our intention is to provide information and insights without endorsing or making recommendations regarding these external parties.
Even though we are more than 2 decades into the 21st century and a lot of technological progress has been made, there are still certain areas were innovation lags behind, particularly noticeable in the investment management sector.
We continue to encounter challenges to accept cryptocurrencies and blockchain, or even adopt them into our investments. For the majority of cases, it still takes days to do settlement of securities or make payments from one bank account to another, although the technology is readily available and has been for a long time. Application of artificial intelligence and machine learning in financial services, including algorithmic trading, credit scoring and robo-advisors are still not available to the wider masses as standard.
There has been some progress, for example mobile banking is now the norm rather than an exception. In short: Investment Managers struggle to keep up with technological advances as the speed of external change is overwhelming. This differs from retail investors where change happens faster.
Systems integration is no different and has notoriously been hard for any organization in fintech in part because if one system lacks modern connectivity capabilities, it does not matter what the other systems are capable of. Looking at SimCorp’s connectivity, the prevailing integration approach has relied on batch-driven and file-based processes for a long time. Adoption of Standards has been limited, with connectivity predominantly aligning with the specific requirements imposed by 3rd parties such as data providers and custodians.
In this review we are going to take a closer look at some of the initiatives SimCorp has taken in the technology space around the integration with SimCorp and how they are adapting to changes in fintech.
SimCorp’s Transformation: From Software to Service-Oriented Operations
Most of our readers will be familiar with the existing tools in SimCorp to integrate with 3rd party systems:
The Filter Tool Box (aka Data Format Setup using Base Filters) to transform and import data
The Data Extractor to query and create a data record,
The Communication Server to orchestrate the integration.
These have been the backbone of SimCorp for over 20 years.
As SimCorp moves from a traditional software company to focus on delivering a platform for financial services, they continue to expand their partnerships with 3rd party vendors in the fintech space. As part of this journey, they have come to realize that they cannot rely on proprietary development tools to expand their offering with these new vendors, but that they must open the SimCorp platform further for easier integration.
This is where SimCorp’s REST API’s come into the picture. It is designed to support various operations and business data, providing a standardized and efficient way to access and manipulate data and does so in a seamless and stateless fashion in real-time.
REST APIs (Representational State Transfer Application Programming Interfaces) serve as a standardized set of rules enabling communication between software applications on the web. Operating over the HTTP protocol, they utilize common HTTP methods like GET, POST, and DELETE to perform actions on resources. REST follows a stateless client-server architecture, where clients make requests to access or modify server resources. Responses, usually in JSON or XML format, convey the requested information. REST's simplicity, scalability, and compatibility make it a widely adopted choice for web services, fostering interoperability among diverse systems and facilitating the seamless exchange of data between applications across the internet.
Everyone can use SimCorp’s API to integrate with SimCorp Dimension, but few clients are using them. We will discuss client adaptation at the end of this article.
This shift by SimCorp is most obvious when looking at their approach to integrating with solutions from 3rd party vendors. In the past, the client held almost complete responsibility for everything with vendors, including vendor management, built and maintenance. SimCorp now offers to take on this responsibility themselves or via the 3rd party vendor, so the responsibility no longer lies with the client. Integration with these vendors is primarily done using SimCorp’s REST APIs.
SimCorp refers to this as an open platform principle but be mindful that the openness only applies to data in and out of SimCorp, not to the core application code itself. In other words, no change from what you could do with the ‘old’ toolkit, except it is a more standardized approach that does not rely on SimCorp built tools.
3rd Party Solutions: Integration Options
There are three approaches this partnership can take which we will describe next.
The first option is a streamlined agreement with SimCorp through a white-label partnership. In this arrangement, SimCorp assumes complete responsibility for the entire solution, encompassing its development (primarily built using APIs), ongoing maintenance, and support. This approach is designed to streamline the process, sparing clients from integration, and contracting efforts. The white-label partnership provides a turnkey solution where SimCorp takes on the role of the driving force behind the implementation. By opting for this agreement, clients can benefit from a pre-built solution with one point of contact for any issues through SimCorp.
The second option is for vendors incorporating their solutions into SimCorp through APIs, without utilizing the white-label approach, taking on the responsibility for constructing their solutions. While receiving guidance from SimCorp, these vendors are directly involved in the development process. In this scenario, vendors independently contract with clients to provide their integrated solutions. SimCorp plays a guiding role, ensuring that the integration aligns with standards and requirements. This approach allows vendors to maintain a direct relationship with clients, offering a tailored experience.
For vendors or clients not choosing SimCorp's white-label model or API’s, a third option is to construct solutions directly within the SimCorp environment. Here clients bear responsibility for the interface, along with associated risks and costs. In this context, SimCorp will offer to collaborate to facilitate standard integration into SimCorp Dimension. This option allows clients or third-party solution providers to independently build solutions within the SimCorp framework. This approach offers flexibility for those who prefer to directly develop solutions in SimCorp.
It should be noted here that while options one and two mainly focuses on solutions through API’s, the third option leaves it open to integrate either using API’s and/or the ‘old’ tools.
Ultimately, SimCorp’s goal is to streamline the process of data consumption for it’s clients through add-on services, benefiting all parties involved (clients, SimCorp and vendors). Further, it is the general strategic intention from SimCorp, on their path to becoming a platform provider, to enable other players/partners to hook up to the SimCorp platforms, without the need to do individual integration via dedicated APIs. Hence, the first option scales best for SimCorp, if successful.
SimCorp Vendor Integration Examples: Plug & Play
We will now look at some of the API integration examples SimCorp has built with other vendor solutions.
SWIFT messaging. SimCorp partnered with Bottomline, a prominent Swift bureau to streamline it’s clients' Swift infrastructure, and simplify maintenance. Bottomline is responsible for the client being in compliance with Swift security requirements, including annual updates and is seamlessly integrated with SimCorp’s standard platform SWIFT configuration, supporting a dozen of the custodians SWIFT messages, from corporate actions to reconciliation and trade processing.
Custodian data. Another type of solution SimCorp has established is called the Asset Service Hub, meant to leverage data from custodians primarily. This connectivity service is cloud-based and fully managed by SimCorp and the foundation has been created in collaboration with AccessFintech, which boasts having more than 70 custodians and Brokers connected through their Synergy solution. Synergy provides permission data, workflow technology, exception handling, data aggregation, enrichment, and distribution in standardized formats among relevant stakeholders.
The solution covers custody, security, and cash position reconciliation, tax reclaims, and handling pending trade data. Additionally, it enriches trade data with additional commentary, extending beyond the typical scope of Swift messages. The system includes data points that assess the likelihood of trade failures and provides recommendations for subsequent actions.
In the past, any connectivity had to handle multiple files via diverse connection methods, in various formats, and through custodians necessitating individualized point-to-point connections that require continuous maintenance.
ESG data. SimCorp has taken a different approach for the integration of Environmental, Social & Governance (ESG) requirements under EU regulation SFDR. Here SimCorp has developed a so-called SIM-format rather than directly integrating with each data vendor. It is a predefined messaging format vendors can use.
The format came about through discussions with various ESG data vendors to collectively determine the content of this format. This decision was grounded in a shared interpretation of the underlying regulatory requirements, particularly regarding the specified principal adverse indicators under SFDR.
Examples of this integration include sustainability data analytics provider Matter and Clarity AI which have both adopted this SIM-format to offer their data to SimCorp clients.
Notably, sustainability data analytics providers, such as Matter and Clarity AI, have adopted this SIM-format to offer their data to SimCorp clients.
Intelligent document processing. Not every dataset adheres to standardization and structure. Certain markets face a distinct technological challenge in data ingestion, specifically revolving around intelligent document processing. This involves interpreting structured data embedded within documents, extracting essential data points, and seamlessly importing them into SimCorp Dimension without the need for manual intervention.
In this instance, SimCorp employed a white-label strategy, leveraging the capabilities of their partner, Alkymi. Together, they developed a workflow tool that enhances usability, especially applicable to the alternative investments space. Consider a scenario where a capital call notice is received in a PDF file. Alkymi's technology uses AI and machine learning technologies to extract data points from documents, transforms them into a machine-readable format, allowing end-users to visually review the information before importing it into SimCorp Dimension.
For more on Alkymi, please see our blog from last year here.
SimCorp Clients: Adoption of APIs
Let’s now shift our focus to SimCorp and explore some of the challenges they are facing.
Looking at the current integration tools, it is no secret that there continues to be an insufficient proficiency in consultants available, particularly in the Communication Server. To be a SimCorp integration expert demands a profound comprehension of both business processes and the SimCorp data model, alongside technical programming skills. While APIs offer a solution by segregating client and server functionalities, developers still need a comprehensive understanding of business logic and SimCorp, albeit to a lesser extent than before. Essentially, in a landscape where technical skills are currently in high demand, APIs represent another tool, constrained by a limited pool of available expertise, and necessitating time for skill enhancement not just within SimCorp, also at clients and from external consultancy firms.
As with any new code, SimCorp API’s are yet to mature. Coverage has improved a lot, but data points are still being added. The biggest challenge is adding new data points, as this requires involvement of SimCorp developers to supplement and enhance the API, indicating that there is room for improvement and expansion in terms of the comprehensiveness and depth of the API functionalities. These observations suggest an ongoing evolution and refinement process to enhance the maturity and overall effectiveness of these newly introduced API’s, making it harder to adopt.
Turning to the vendors SimCorp has partnered with, it's noteworthy to mention that, in our assessment, many are still in the early stages, and there might not be a significant number of clients live. While these partnerships hold considerable potential, it's important to acknowledge that these APIs are relatively new and may not yet boast the same level of maturity observed in more established tools. As the industry evolves, these functionalities are expected to grow and mature over time.
For existing clients there is little incentive to change any existing interface to the API’s if they work, and for most integrations there are few to no changes required. Curiously though, for new clients, the adaption of API’s when building interfaces seems to be very limited. Many projects still work with the ‘old’ tools.
Cost Benefit: is it worth it?
It is clear that 3rd party vendors see value in this model, expecting easier data sales to SimCorp's clients through a well-established, market standard, non-proprietary interface with SimCorp’s investment management system. This approach streamlines integration, enhances accessibility, and provides a competitive advantage, positioning vendors as preferred partners within SimCorp's ecosystem.
SimCorp holds a strategic advantage in scalability. If they can implement solutions with their partners at scale, it has the potential to be more cost-effective compared to individual clients developing their own solutions. By centralizing the development process, SimCorp can capitalize on economies of scale, driving down costs and ensuring a more efficient and cost-effective implementation for a broader client base. This centralized approach aligns with the idea that a collective, scalable solution can be more economically viable than individual, bespoke builds for each client.
Clients benefit from increased 3rd party integrations with SimCorp Dimension. This includes expanded data options, increased negotiating power, and reduced barriers to incorporating new data sources as they can try before buying. Consequently, clients can explore diverse opportunities and make more informed decisions in their financial strategies. It also streamlines and expedite business changes, like incorporating new custodians or new data providers as SimCorp would possess a pre-tested and validated solution ready for testing/production.
Note, most of these 3rd party solutions are contingent on adhering to standards, which inherently limits the scope for personalized configurations. Firms need to carefully weigh the consequences of relinquishing customization. While it may be beneficial in numerous scenarios, there are instances where the trade-off might not be justified.
Finally, it's important to acknowledge that, despite our confidence in SimCorp, the adoption of the white-label approach can potentially result in reduced transparency and accountability.
We hope you found this article insightful. If you are considering any of the topics we described or would like to discuss some of the challenges you face with SimCorp, please drop Ebbe Kjaersbo a line.