It is said that every person, on average, is connected to another person through a maximum of six people – the six degrees of separation. However, if you are a Facebook user, then this distance is reduced to an average of three and a half people.
Such is the power of a platform – it can bring together a diverse group of people, some are producers, some are consumers, and some are producers and consumers, to create a network where value can be created and distributed at scale.
Now imagine a similar kind of value being generated in the financial services space. The possibility of an Amazon for financial services – a platform where scores of product and service providers can converge and offer personalized financial solutions at scale.
Such possibilities are already in play across payments, lending, and insurance and are expanding further. Today, financial services are firmly tethered to Data and Application Programming Interfaces (APIs) versus Capital and Manpower in the past.
Investment wizard Peter Thiel says, “In the networked age, the scale of production is no longer a moat. Instead, network effects are the new moat. And, this is the new moat for the financial services space as well.”
Enabling multi-way value generation
Platforms have disrupted several industries and created exponential value for both the platform and the customers of the platform.
A well known but perennially relevant example is Amazon. The company leveraged platform play to not only give a fillip to e-commerce but subsequently integrated several industries spanning logistics, payments, hardware, data storage, and media to provide end-to-end solutions. Today, through AWS, their Cloud Services platform, they are powering the biggest financial services providers without being directly involved in the sector.
While early-stage platforms were often ‘two-sided,’ we are now seeing the emergence of multi-sided platforms. These create network effects that allow multi-way interactions across providers and consumers, thereby generating accelerating returns to scale.
Leading this multi-way paradigm shift from the front are the likes of Amazon (AWS & e-commerce), Jio (telecom stack), Google (search stack), Facebook (social media network), and Paytm (payment ecosystem) where they are the platform enabler and are expanding the ecosystem across the board in different products and services.
The era of embedded financial services
So far, financial services products have been commoditized as institutions, in their haste to achieve wide-scale distribution, push largely homogenous products. Consequently, most solution providers have worked in silos. Nobody is talking to each other to build interconnected systems and provide the customer with a personalized offering. Hence, the onus of working with multiple isolated providers to achieve their objectives falls upon the customer.
Simultaneously, the financial services consumer is becoming more savvy and aware of his nuanced requirements. This landscape, supported by the technology stack, is perpetuating a shift towards servicing broader consumer needs as part of a larger ecosystem and creating a new embedded financial services era where customers are served personalized financial services solutions.
For example, when you buy something online, you can instantly avail of an EMI facility or purchase travel insurance at the time of booking a ticket. When you buy a home, all your home buying needs can be fulfilled seamlessly.
Similarly, when you are purchasing goods for your business, you can get an instant loan based on your business credit history.
Now, you can even make payments to your friends while chatting on your favorite messaging app.
All this is possible because open platforms are interconnected through data sharing and API access to provide personalized solutions.
Thus, the financial services industry can engender significant value through platformization.
Interconnected digital platforms offer consumers and businesses the ability to seamlessly connect to financial and other service providers through easy-to-use digital interfaces designed scientifically to provide intuitive experiences.
They can transform opaque and expensive products and services into accessible, consumer-friendly opportunities.
However, a robust and accessible platform can only be created if built upon a solid technology infrastructure.
From that perspective, India’s financial services industry is well-positioned to harness the benefits of solid technology infrastructure.
For example, Aadhaar powered the India stack that comprises UPI, e-Sign, E-KYC, DigiLocker, Aadhaar UID, and Accounts Aggregator. This enabled financial services players to build innovative, customer-friendly solutions on top and seamlessly integrate across the financial services value chain.
Core building blocks like cloud infrastructure, consent-based data, APIs, and open platforms enable distribution at scale and encourage product side innovation.
Several companies have created products/services on top of this stack to meet the nuanced financial and investment management needs of an average consumer.
The future of the Investment Management Industry
Recognizing the value that can be unleashed with platformization, the investment and asset management space is actively looking to embrace platform play. This spells well for the industry and its consumers. Platformization will allow investment management firms and advisors to unbundle their core competency or service offering ranging from ideation and research to distribution and execution, and offer them to customers seamlessly and cost-effectively.
The limitations imposed by monolithic institutions no longer constrain a customer looking for a specific product or advisory.
Instead, customers can access platforms that allow them to choose the investment product that meets their particular requirements.
Powering this choice is the infrastructure that enables investment product innovation and large scale distribution, i.e., the platform.
Platformization will allow the rise of personalized and differentiated investment portfolios, accelerate the growth of personalized and robo advisory, and facilitate newer models of wealth creation like Digital AMC and Digital Wealth Management. The ultimate beneficiary of platformization will be the end customer.
Platformization is slowly becoming ubiquitous in the financial services space, with everything from lending, payments, insurance, accounting, taxation, and regulation technology being provided as a platform service.
Most of these services are API enabled and are plug and play in nature, only enhancing their usability. Additionally, it lowers the barriers of the financial services ecosystem. It ensures that services that were previously the bastion of hallowed institutions can now be provided and utilized by almost anyone, creating a landscape where you could bank or conduct financial transactions with your favorite brands like Apple, Amazon, Google, Uber, PayTM, or Reliance Jio.
With different companies providing financial services as a value-added service to their customers, the future of financial services will be very different from what we see now. This will truly democratize financial services in the country.
--The author Ujjwal Jain is the CEO and Founder, WealthDesk. The views expressed are personal.
First Published: IST