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Bringing order to chaos: Amazonisation and the asset management industry

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The ways in which Amazon’s business model could be employed by financial services and fintech firms to influence, disrupt and reshape the asset management industry are explored in a deep-dive new study by SEI.

The ways in which Amazon’s business model could be employed by financial services and fintech firms to influence, disrupt and reshape the asset management industry are explored in a deep-dive new study by SEI.

The wide-ranging paper, titled ‘Amazonisation 2.0: The Exponential Pull Of Innovation’, considers how a multi-product, multi-service platform may seek to emulate Jeff Bezos’ retail giant within an investment landscape which remains fragmented and competitive. 

Amazonisation is one of several emerging trends that are driving innovation in the asset management industry – along with Watsonisation, Googlisation, Uberisation and Twitterisation – and which are explored by SEI in a series of white papers. It describes the way in which online platforms are “reshaping business dynamics and putting customers in charge, forever altering the customer experience.”

SEI believes the dominance of the world’s largest online retailer shows that Amazonisation is “no longer just an observation that a particular segment is being upended by an online competitor generally,” – rather it increasingly means “an industry is being disrupted by one very specific and voracious firm.”

The paper acknowledged how there is still no equivalent of Amazon within the financial services sector, given the disparate, fragmented and competitive nature of the asset management business. Yet it also pointed to how the strengthening presence of certain firms within financial services sub-sectors – such as brokerage, data services, and exchanges, among others – could begin to resemble Amazon’s dominance of digital shopping.

As venture capital investment in fintech has soared to more than USD100 billion in the last few years, this “frenzied financing” of fintech startups has led to what SEI describes as a “complex ecosystem” of companies which have yet to coalesce around any dominant platform.

But the example of Amazon’s recent acquisition of Chicago-based Health Navigator – “an enterprise that initially seems far removed from Amazon’s core” – shows one potential path for the financial services industry, SEI said, where certain firms are attempting to bring together disparate business data streams and analytical capabilities into a coherent value proposition.

The deep-dive analysis also gauged how startups aim to address specific niches within the broader financial services landscape, spanning alternative lending, cybersecurity, compliance and more.

“Financial services and fintech will quickly become impossible to tell apart. The evolution of the combined industry is likely to accelerate as a growing number of infrastructure firms collectively reduce the barriers to entry for new fintech,” SEI wrote.

But with every segment, channel, product, service and function now fair game for reinvention, a current snapshot of the financial services ecosystem might not even be feasible, it added, pointing to a “complex, multi-dimensional network of connections.”

“Asset management is already heavily intermediated, with multiple layers and external influencers and infomediaries,” the report observed. “A growing tech stack and network of vendors and partners makes the ecosystem look more like a Jackson Pollock painting than a schematic.

“This is why platforms are so powerful. They curate connections, facilitate transactions, enable communications, provide liquidity, control transparency and ensure security. They bring order to chaos.”

There are no equivalent examples of Amazonisation within the asset management industry, where fierce competition has left the industry 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,” SEI observed, noting how the leading firms – including Envestnet, SEI, Vestmark, Fiserv, AssetMark, Orion, Brinker and others – still tussle for market share.

As a result, SEI believes that any dominant platform that may emerge will need to deftly incorporate a broad variety of technologies and skillsets. The paper examined an array of financial services sub-sectors – including banking, investing, brokerage, lending, data services, exchange, infrastructure, payments – where potentially-dominant players could emerge.

It pointed to Nasdaq, which has expanded its core focus within the exchange sector through M&A, broadening out into the private securities arena through Nasdaq Private Market. Meanwhile, Morningstar is cited as a key contender within the data sector, with SEI highlighting its reputation as a trusted data provider before it moved into analytics, software, and media.

“Now applying the full scope of its expertise to offering TAMP services, the company illustrates yet another avenue to Amazonisation,” SEI explained.

The report also weighed up the evolving dynamic successful business models and low costs within the asset management sector.

While passive investors have been buoyed by a combination of low costs and high returns for many years, amid a long bull market, “it is not hard to imagine a less buoyant or highly volatile market environment taking the shine off of all that beta exposure,” SEI said.

“Differentiation will always have a place in asset management due to the varying preferences, needs and perspectives of investors who are ultimately more concerned with value than with the lowest price.”

As a result, platforms will be “critical” to the industry going forward.

Against a backdrop of lower entry barriers and easy access to talented investment industry pros, coupled with innovative tools, liquidity and transparency, emerging Amazons of financial services will ultimately improve the investing experience for both individuals and institutions, SEI said.

“Most investment firms do not aspire to be platforms. It isn’t in their DNA, their goals or their aspirations,” it added.

“That doesn’t mean they can ignore Amazonisation: Not having an actionable plan for emerging platforms is laying a course toward inevitable failure. More importantly, it could mean missing the opportunity of a lifetime.”

Click to read online or download the SEI white paper – The Exponential Pull of Innovation: Amazonisation 2.0 – UK version or US version.

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