Investment platforms proliferate
Investment platforms are user interfaces that attract buyers of investment services and facilitate the marketplace for investment products, distributing either in-house investments or open-architecture products. Opportunities lie in both B2B and B2C, and in one-sided and two-sided designs, dependent on one or two types of participants, respectively. These platforms are increasingly automated and drive down costs.
- Investment platforms are subject to many of the transformational factors affecting other disruptive technology platforms (think Amazon and Airbnb). Such platforms have innovated their business models to exploit scale, needs, and flows. They use ideas and intangible capital rather than large-scale physical capital. Businesses introducing platforms are both mainstream investment firms and fintech start ups.
- In this narrative, the investment industry develops new investment platforms that bring scale and improvements to the end investor interface (such as customized financial statements unique to client investment goals). Other examples include the robo model platforms developed by The Vanguard Group and Schwab, or asset management exchanges developed by AMX and others to standardize and centralize investment vehicles in order to increase marketplace transparency and efficiency.
- The defined contribution (DC) pension system benefits from platforms that aggregate pension arrangements from multiple employers by providing investment choices, engagement, and administration services. Platform arrangements produce significant scale in the DC marketplace and enable innovation in technology and product design.
- The effects of platforms vary significantly across countries and value chains, largely because of differences in regulatory barriers and the different country-specific evolutions of fintech. But much of the innovation in this narrative comes from outside challenger models that are unencumbered by legacy business models.
- Regulatory authorities influence how far and fast innovation progresses. They are caught between wanting to encourage competition and innovation and needing to provide meaningful oversight of these disruptors. The investment ecosystem’s complexity makes regulation increasingly hard, and although regtech can help develop some efficiencies, it is still inevitable that innovation is subject to regulatory friction and logjams.