Read online: The Exponential Pull of Innovation Amazonization 2.0

Part Three -- Asset Management Examples

Asset Management Examples

There is no equivalent of Amazon in the asset management industry. There are major players, to be sure, but myriad efforts over the years have left us with a competitive landscape that remains relatively fragmented. No one has managed to assemble all of the pieces in a way that recalls Bezos’s baby. Turnkey asset management platforms (TAMPs) might seem to be the obvious place to look, but many firms are subscale, and acquisitions aimed at growth, scope or consolidation are the norm. Leading firms such as Envestnet, SEI, Vestmark, Fiserv, AssetMark, Orion, Brinker and others continue to vie for market share in this fiercely competitive sector.

If a dominant platform ultimately emerges, it will need to deftly incorporate a variety of technologies and skill sets.

Whether a dominant platform is ultimately built around an incumbent or a startup, it will need to deftly incorporate a variety of technologies and skill sets. There are already thousands of fintech startups hailing from all corners of the world, with major hubs emerging in the U.K., Switzerland and Singapore alongside those in Silicon Valley, Boston and New York. Many of these companies may not exist a decade from now, having been out-competed or acquired in the rapidly evolving sector. Everyone who lived through the dot-com crash is intimately familiar with how quickly things can go south. Only the well-capitalized firms with sustainable business models get through. As such, it is not necessarily the names that are important. Even those that survive and thrive are less likely to become platforms with well-known brands than cogs in larger ecosystems. Rather, it is what these companies represent that is important; it is their technological innovations, their strategic direction and the momentum they represent that will be long-lasting.

We have compiled a sample list of firms reflecting at least some of the scope that is likely to be necessary. Fintech encompasses many functions, ranging from security to HR to marketing, but the core of any investor-facing platform is likely to be comprised of investments, banking, trading, lending, media, data and networking. Diversification means many firms defy siloed categorizations, so these have been grouped by their original function, illustrating the many potential entry points for would-be platforms and their constituent parts. The list should not be considered to be exhaustive.

BANKING

Startup banks focused on daily financial transactions via mobile apps are sometimes referred to as “challenger” banks. With their frontal assault on incumbent banks, they might represent the most direct threat to the status quo of financial services. Despite significant regulatory hurdles, well-funded firms have already taken root globally. Revolut and Monzo are two prominent examples in the U.K. N26 hails from Germany and Nubank began in Brazil and quickly expanded. Chime and Dave are just two examples in the large U.S. market. To date the focus has largely been on deposits and cards, but fuller integration with wealth management seems to be just a matter of time.

INVESTING

Robo-advisors such as Betterment, SigFig, Personal Capital, Wealthfront and Nutmeg were launched as cost-effective and easy-to-use investment platforms running seamlessly on mobile applications. Their most distinctive feature, however, was automated advice that made it simple to construct ETF portfolios tailored to individual needs and risk tolerances. Robos have found fans and gathered billions in assets with their slick applications and effective algorithms, but organic growth may ultimately be capped by similar services offered by incumbents like Vanguard and Schwab. Integration with banks (traditional or digital) and more traditional advisory firms may be the most likely avenue for expansion going forward.

There are smaller, more specialized firms competing in this space as well. Digit is an app that analyzes spending habits and automatically saves and invests a certain amount each day, effectively making money management a no-brainer. Meanwhile, Yomoni is attempting to democratize wealth management in France by bringing sophisticated online investment services to the masses.

BROKERAGE

Marrying technology to transactions, discount brokerage firms have been positioned as investment platforms of the future for some time. This doesn’t mean they are immune from disruption: Newcomer Robinhood immediately made a name for itself when it announced commission-free trading, ultimately causing established players to follow its lead. It has moved on to offer free trading of fractional shares, making investments even more affordable to young investors with fewer liquid assets. Using scalable technology and increasingly lower transaction costs as its backbone, Robinhood demonstrates the power of simple ideas that will almost certainly be found at the heart of any offering by large platforms in the future.

LENDING

Beginning as a marketplace lender, CreditEase has grown into a leading fintech conglomerate in China, where it now boasts a range of other businesses such as wealth management, crowdfunding, robo-advisory, insurance technology and blockchain products. The company is also an active investor and incubator of other fintech startups.

REFINANCING

Using its successful student loan refinancing business as a springboard, SoFi quickly expanded into other types of lending alongside banking and investing. One of the first fintech unicorns, the company has relatively widespread brand recognition for a firm that is still less than 10 years old. Having proven prolific at fundraising, SoFi’s continued expansion through M&A seems inevitable.

Figure represents another flanking maneuver on the larger financial services market. Starting in 2018 with a focus on home equity and based on blockchain technology, the company quickly raised over $1 billion and is expanding its scope. Notably, the company was founded by SoFi’s ex-CEO.

DATA SERVICES

Information and insights have proven to be fruitful entry points for a number of companies with larger aspirations. Bloomberg began as a pioneering data and analytics firm that became an indispensable part of the operational fabric at many firms before going on to become a global media empire.

Morningstar established its reputation as a trusted data provider before moving into analytics, software, and media. Now applying the full scope of its expertise to offering TAMP services, the company illustrates yet another avenue to Amazonization.

Much earlier in its life cycle is Benzinga, which provides financial news and analysis. Still small, it is gaining traction by its adept use of social media and focus on sectors with less coverage like the cannabis industry. YCharts is focused on market data visualization, an essential aspect of financial services that could prove central to any platform’s offering. Novus—a portfolio analytics firm—is another narrowly focused firm that could prove to be an integral part of a larger platform, for whose investors it would help manage and analyze risk, performance and exposure.

EXCHANGE

Nasdaq’s core business does not require an introduction, but the company has been actively expanding its scope of activities via M&A. Acquisitions like SecondMarket, Solovis, OneReport, Quandl, Cinnober, eVestment, Sybenetix and others make Nasdaq far more than just an exchange for publicly traded shares. Now with Nasdaq Private Market, it is firmly positioning itself in the midst of the growing market for privately owned securities through auction funds and other avenues.

Liquidity solutions for private markets are multiplying. Forge (formerly Equidate) positions itself as a marketplace for private equity. Having merged with SharesPost in early 2020, the combined company boasts more than $6 billion in transaction volume involving hundreds of companies.

Not all approaches are the same. Zanbato is a crossing network for private securities that provides market data, counterparty verification and order execution for broker-dealers and institutional investors. Palico is a Paris-based firm aiming to streamline the secondary market for private equity. OurCrowd is a global crowd investing platform for accredited investors. Fundbase aims to make alternative investing more accessible and efficient, allowing investors to find, trade and monitor high-conviction investments while communicating and collaborating with one another.

INFRASTRUCTURE

Infrastructure companies are intriguing because they often fly under the radar while being indispensable.

Quovo is a data platform that provides both fintech companies and traditional banks with connectivity and insights for millions of consumer financial accounts across more than 14,000 different institutions. The company’s APIs, modular applications and enterprise solutions help predict, transact and personalize their services more effectively.

Plaid began with APIs that amplified data liquidity, connecting financial institutions with consumers and developers. The company now offers analytics products alongside data access. One of the first fintech unicorns, it was acquired by Visa for $5.3 billion in 2020.

Harvest Savings & Wealth Technologies (formerly known as Trizic) provides integrated savings and wealth solutions for the financial industry, essentially serving as a robo for banks. In a sign of things to come, Creative Planning (a major independent advisory firm) took a stake, expanding its access to the mass affluent market and insuring itself against disruption by independent robos.

True Potential delivers a similar value proposition in the U.K., where it provides an integrated wealth management technology platform for advisors. The platform streamlines the entire engagement with investors, with customized plans, client onboarding, fee and commission reconciliation, client servicing support and a client portal. It is used by one out of five financial advisors in the U.K.

DriveWealth offers a cloud-based, API-driven brokerage infrastructure that can theoretically drive any investment experience desired by the client. InvestLab provides a customizable trading platform via a SaaS (software as a service) model to retail brokerages, whose customers can access any market around the world while trading almost any equity, option or commodity available.

Based in Austria, Wikifolio serves traders who are confident that they have something others will want, empowering them to turn their portfolios into fully-fledged financial products (“wikifolios”), listed on Europe’s leading exchange for structured products.

Kurtosys helps financial firms go digital—a transformation easier said than done, since it involves orchestrating a flood of data from various sources in myriad formats.

PAYMENTS

Airwallex is notable for focusing on reducing friction for globalizing businesses. It positions itself as a technology company offering an “end-to-end global financial services platform” for its business clients. Already one of only a few Australian “unicorns,” the company’s most recent round of its $360 million funding came from Salesforce, pointing toward potentially powerful synergies.

No discussion of platforms would be complete without mentioning Ant Financial. The Alibaba affiliate famous for once having the world’s largest money market fund, it has quickly evolved to become a financial services powerhouse in China. With its roots as a facilitator of payments, the platform model is in its corporate DNA. Its subsidiary, Ant Fortune, with more than 100 asset management firms offering over 4,000 investment products, offers a glimpse of the future of wealth management.12 Even with a relatively modest footprint outside of its home market, Ant Financial is already one of the world’s most valuable financial companies, with a valuation in the neighborhood of $200 billion.13

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Legal Note

The Investment Manager Services division is an internal business unit of SEI Investments Company. This information is provided for education purposes only and is not intended to provide legal or investment advice. SEI does not claim responsibility for the accuracy or reliability of the data provided. Information provided by SEI Global Services, Inc.