Difference and Differentiation: What next for investment platforms? - Paper - Page 21
Innovation does not need to be a single disruptive
event; working to combine existing technologies can
deliver innovative results. Behavioural science has
already demonstrated the power of nudges to change
activity, so with the explosion of natural language
processing AI at the start of 2023, the availability
of standardised data through Open Banking
connections, and AI’s ability to process vast amounts
of data to spot patterns and make predictions based
on that data, we are offered an interesting route to
deliver financial guidance, or advice, to people across
all income and wealth brackets. How the industry
integrates and exploits this when technology does
democratise finance is something to keep an eye on
moving forward.
The UK Financial Services sector has embraced fintech
and digital innovation, recognising the potential
benefits to their businesses and customers. Some
long-established businesses have formed partnerships
with fintech firms to drive innovation and improve their
services. How those services are strung together is
important, making sure all the unique widgets, tools,
and services blend for a coherent, recognisable, endto-end proposition and aren’t a duck-billed-platypus
of composite parts. Much like in the world of financial
advice, the watchword is suitability. The selection
and application of innovative technologies must be
appropriate for our businesses, they must connect with
and advance our strategic objectives. We need to be
clear on the problems we are trying to solve. With that
strategic vision understood, and the target operating
model defined, we are in a better position to navigate
the sea of change.
Regulation is one of the biggest drivers, but is also
a barrier for change within our industry. The volume
and nature of regulation can stifle innovation as there
are significant additional costs and bureaucratic
hurdles which mean any new entrants may need
deep pockets to bring something to market. A quick
glance at published accounts for the new entrants
taking a fresh look at platform service & technology
show businesses that are running with operating
costs of £3m-£6m and at least 50% of the workforce
engaged in software development; something that
won’t necessarily go away as firms keep pace with
the inexorable march of technology and regulatory
change. Some rudimentary maths suggests those
firms will need to be supporting upwards of £5bn
AUA to break even, based on current pricing structures
within the market. Whether those pricing models
persist remains to be seen.
Even established businesses, as seen recently
from the uncertainty over GBST following their brief
acquisition by FNZ, Gaudi’s insolvency, and the
Bravura fund-raise, are not immune to disruption
and the ripples this creates can be significant in a
narrow, thin-margined, market. Increasing scrutiny of
operational resilience, building on the work around
Important Business Services, means firms who use
a third party for anything from tools and calculators
through to administration platforms and outsource
servicing will need to have a very clear view on how
those services are provided, how they are governed
and overseen, as well as how any exit plan would be
handled by one or more alternate suppliers should the
worst happen. This is already a significant undertaking
where firms use only a handful of solution providers,
and where governance could increase materially
in a highly integrated microservice world. Again,
having that clear view of our composite business
and technical architecture aids us in knowing who is
providing what service for us.
There is no doubt in the role technology will play in
how financial services are delivered to customers,
and although the pace of change hasn’t been
stellar, a momentum is building as the application
of distributed ledger, micro-services, generative AI,
and good old-fashioned data integration become part
and parcel of business-to-business and business-toconsumer propositions.
How quickly and well this translates into market
innovation relies very much on the flexibility of the
regulator and the appetite for change within the
industry itself. If we can’t deliver compelling, efficient,
accurate and timely digital services from our platform/
provider dabbit, someone else will, and the end
customer won’t give a duck.
Duck
Rabbit
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