Nasdaq recently announced an investment in Caspian, a provider of automated anti-money laundering (AML) investigation solutions, through its Nasdaq Ventures group in collaboration with Nasdaq’s Market Technology business. The arrangement with Caspian also includes a technology partnership where the companies will work together to progress RegTech solutions addressing financial crime. This exciting partnership is a great example of how Nasdaq Ventures collaborates with Nasdaq businesses to drive innovation and deliver against strategic goals and objectives.
Michael Karbouris, Head of Strategy within Buy and Sell Side Solutions in Nasdaq’s Market Technology business, answers a few questions about what the future of RegTech looks like, and how we can get there.
How do you drive innovation in your RegTech portfolio?
Nasdaq has a long-term vision of what we want to deliver to clients and the innovation we need to build into our roadmap. We build this vision based on our predictions for how the RegTech landscape will likely evolve in the future. Our vision is driven by our clients’ experiences and first-hand feedback, but it’s also guided by our own financial market experience as well as valuable input and research from industry practitioners.
First and foremost, we take a client-centric approach to investing in innovation – whether through organic or inorganic means. We continuously consider how our clients are evolving, what they’re going to value now, and what solutions will position them to excel and accelerate their own vision for the future. We’re fortunate to be able to derive unique insights from our broad, deep client base that comprises 160+ institutions around the world. We’ve demonstrated success delivering many projects where we’ve directly worked with client steering groups to develop a concept, prove it, and then go more broadly to market. In other instances, we couple their input and feedback on pain points with industry research and expertise to build a business case to solve through partnership or inorganic investment.
Generally, once we’ve identified a business problem that can be solved through innovation, we start to explore how we can solve the pain point using technology. We look at which technologies are most appropriate to use, and whether we have the capabilities and bandwidth to build in-house, or if we would be better served to invest, partner or acquire.
Often, solutions we are evaluating involve emerging technologies such as artificial intelligence and machine learning (AI/ML), robotic process automation and cloud computing. In these instances, we find that we can benefit greatly from a partnership with other disruptive technology vendors that frequently can be more nimble and innovate faster with novel approaches to new technologies. If we get to the point where we find a potential match with a disruptive partner, we can collaborate with the Nasdaq Ventures program to evaluate investment opportunities and back the initiative for mutual benefit.
How does Nasdaq Ventures support your business goals and objectives?
Launched as our venture investment arm in 2017, Nasdaq Ventures is dedicated to discovering, investing in and collaborating on new technologies and groundbreaking solutions that align with Nasdaq’s long-term objectives in the global capital markets. The program is focused on spurring innovation and technology transformation that aligns with and accelerates our vision.
We see our relationship with the Nasdaq Ventures team as synergetic, with both teams working together to solve real problems, provide value to our clients and directly generate revenue in partnership with Nasdaq businesses. When we identify opportunities like Caspian, they are mutually-beneficial. Overall, Ventures provides a vehicle for building a sustainable model for innovation. We can use the Nasdaq brand name, client base and best-of-breed business practices to rapidly accelerate our portfolio companies’ growth and give smaller firms much-needed validation in the market. In some cases we work with our portfolio companies to help access a strong distribution channel that they would not have without our help. Through these efforts, we can jointly disrupt the industry and more quickly realize competitive advantage.
Can you explain the concept of “open innovation”?
Nasdaq’s goal is to tread a path of continuous innovation, so we’ll survive and thrive well into the future. There’s a wealth of evidence that suggests growth through innovation leads to superior performance. There have been some hard-hitting predictions on the downside of not taking an aggressive enough approach toward innovation. For instance, according to John Chambers, former CEO of Cisco, without innovation 40% of all businesses will be dead in a decade.
By funding investments and supporting portfolio partnerships, our Ventures program directly supports our innovation initiatives. Ventures also provides us with access to strong networks and high-quality companies with innovative solutions. As such, we can ensure that we’re always on the pulse of technology advancement and evolution, not only in our direct industry, but also other related industries with similar challenges and needs.
We work very closely together to fund strategic innovation and R&D activities through investment-driven partnerships with earlier stage companies. Open innovation allows us to facilitate this, while financially separating early stage investments that might take longer to materialize from our usual business operations.
How are you collaborating with Caspian, and what do you hope to achieve from this investment?
We explored the AML market extensively to identify suitable growth opportunities as it’s an area that we feel is ripe for innovation through technology.burdened with multi-billion dollar operational expenses. Moreover, expensive and inconsistent processes lead to inefficiencies, and there’s a shortage of qualified staff. Interviews with several Tier 1 banks helped to validate our hypothesis.
We decided that Caspian is the right innovator for us because it has a proven and validated technology solution that solves a huge pain point, dramatically increases analyst productivity and yields meaningful cost-savings for compliance teams. To this end, we’re making a minority investment in Caspian, because we believe that together, we can truly advance the industry’s approach to financial crime and improve transparency and integrity across global markets.
We have core competencies in fighting financial crime through our experience as a leading RegTech provider. That, combined with our ability to build solutions at scale for global distribution, adds value to Caspian’s solution and our investments – both from a knowhow and financial perspective – and will enable Caspian to accelerate its go-to-market strategy. Further, Caspian can take advantage of our expertise in enterprise SaaS hosting, proven delivery capabilities and world-class information security standards to help accelerate its cloud migration and SaaS journey, while continuing to focus on innovating its machine learning platform.
How will you continue to differentiate and grow your portfolio in the future?
As I mentioned, we never take our eye off our clients. We’ll continue engaging with them, and adjust course as we identify new areas where we can help move the needle to either become more efficient and productive, bring new insights or grow their businesses. Nasdaq has a huge amount of expertise in RegTech through our Market Technology business and hands-on experience in our own markets. Additionally, our Ventures team is well-versed in our space, and we are optimistic that our collaboration with Caspian will be fruitful and serve as a model for future investments.
Overall, growth will come through scaling up our innovation model. We’ll leverage our past experience to improve our structure, knowledge, operational models and strategy. We’ll ensure that the interests and incentives of our sponsoring business units and portfolio companies are aligned, and have mechanisms in place to re-align interests over time. Finally, we also strive to ensure the right dynamics are in place so that founders and their staff are motivated.