The following is a guest article by Peter Bentley, Founder and Managing Partner of London-based KentMarlow Solutions, a digital transformation advisory business that works with financial services content businesses.
FinTech solutions designed to source, value, organize and pay for research (and alternative data, corporate access and other investment inputs) have proliferated yet struggle to achieve their objectives. Despite being brilliant collaborative innovations, their benefits are siloed with limited engagement, in many cases. The solution is to better focus on the buy-side workflow, and to coordinate across the FinTech silos.
MiFID II is an ongoing catalyst for change to the traditional ways of acquiring, servicing and monetising clients. FinTech sees the opportunity but the challenge is how to realise it. Many of the new solutions lack a systematic approach to commercialising the business…and this is now acute when the next 12 months will make the difference between winning and irrelevance. Although there are clear examples of success within the space, those are exceptions rather than the rule.
Before we start to reimagine how to optimse FinTech let us consider some of the issues:
- Perception: The initial ‘disruptive’ marketing of FinTech has prompted some established market players such as banks to disengage and, in several instances, block access to content. This is a significant problem for those solutions which require engagement with content providers.
- Fragmentation: The sheer number of protagonists has caused confusion on the client side. [Integrity Research counts over a dozen research aggregators, a dozen corporate access platforms, ten firms with research payment solutions and nine firms offering to organize research inputs.] Understanding who does what means that all FinTech firms are competing for share of mind even though they do not necessarily compete on a product basis.
- Silos: A narrow focus on specific tasks such as research dissemination has enabled quick development of user-centric products. The downside is that each business is not compelling enough to be given the full attention of the buy-side client who is centred on making an investment decision not any component part of that process such as read a report, take a meeting, etc.
- Commercialisation: In many cases, client acquisition has been relatively successful with FinTech platforms claiming 4-figure audiences. However, engagement and conversion to paying customers seems to be low.
- ‘Easy’ Solutions: Optimizing on ease of use may miss the target where behaviour is changing or required to change. Often there is cynicism on the ability to solve significant problems at a low price (which means people are willing to accept premium pricing). Significant change management may be in order to embed and help clients see value. This tends to be a contrary to the business model within FinTech as it requires hand holding and effective client service.
Workflow not products
Most solutions are ultimately aimed at the decision maker in the investment process, whether through empowering the sell-side to be more effective or directly servicing the buy-side. Therefore, the focus of the “sell” should be on the client journey and the workflow around the investment process. This is a proven approach seen in content businesses like Bloomberg and a journey, one would assume, targeted by Visible Alpha.
Underlying the investment process is a systematic approach to decision making. Most asset managers would claim their process is unique, but the steps in the process are consistent and can be easily organised. Inputs will vary, starting points may differ, some may go deeper into one particular step and skip another, but they are all going through the same process.
Scarcity of clients is not the problem. Whether it be clients being cut off by brokers or clients cutting off brokers (as they are required to do under MiFID II) there are lots of potential clients to go around. I say that from a personal experience of helping brokers reduce their focus lists for the best part of my career.
Citi veteran Dan Sanders wrote that trading desks don’t always know why they are paid and we had the same issue at Macquarie. That’s a champagne problem and proof that marketing and branding is worth every penny in the long term. So clients are not the issue, the issue is that brokers have yet to find a sustainable business model to be able to service clients at different price points. That’s due to both the cost of the existing business model and the steadfast refusal by some to think about servicing some (not all) clients in a different way.
Therefore the challenge is facilitating the client journey through a different business model. The great thing about the current environment is most of the steps can now be outsourced, mostly to FinTech providers, but unfortunately on a very siloed basis. There is currently no one that can do everything in a compelling way outside of maybe Bloomberg (though they refuse to invest in bringing it together or engage with content providers in the right manner).
What if the solution already existed within the FinTech community? Rather than a multitude of different solutions creating a war of attrition, the individual products were wrapped into one big solution?
If the catalyst were a proactive approach to account management and a focus on enhancing client adoption, you could drive synergies across the breadth of clients. Providing a compelling product-based solution could be sold to both sell or buy-side. Brokers could then focus on their relationships and everything else could effectively be outsourced. At a minimum, you could contract with one party instead of five.
- Democratisation of resources: Through collaboration, brokers could outsource undifferentiated content and focus resources where they provide an edge, allowing much needed flexibility to pricing and the ability to provide a scaled model. In an ideal world, savings could be provided to the client.
- Sales: In a re-imagined world no one ever really sells. Everything becomes a referral process where providers are incentivised to upsell different vendors on a reciprocal basis to their already engaged clients. Couple this with an effective CRM approach and you can restructure the Equities business model through combining numerous capabilities and products.
- Implementation: This could be funded through premium fees which will ultimately increase engagement and the likelihood of repeating subscription fees. This provides flexibility around commercial models and can be a material revenue stream in isolation.
- Collaboration not competition: Brokers have been fighting a zero-sum game. Collaboration and focus is the way forward. Think of brokers as owning relationships, brand and distribution which is their core business. Extension of content, utility, infrastructure (all the stuff that make most of them unprofitable) have been perpetuated through the misguided need to own product. Amazon started by just owning the distribution.
So where do we go from here? Change is already happening. Collaboration is occurring and ‘camps’ are forming. FinTech platforms are entering joint ventures and formal agreements are being executed. Functionality coming together will lay the right foundations, but ultimately the ability to provide integrated solutions supported by robust change management and CRM will be the be key to an effective ongoing business model that is focused on results not just a valuation.