SEBI’s sweeping transformations of its regulations driven with the retail investor in mind has spurred some of the largest distributors, advisors, and AMCs to rethink their approach towards the end customer. Yet, ~98% of the retail population is yet to be brought into the fold of the mutual fund industry. And ₹ 30,000 crores still reside in the savings account instead of liquid and debt funds.
This massive opportunity to bring these investors onboard through not just SIPs but true micro investing begins with technology. Traditionally, the finance industry has been running on mainframes. Then came the surge of web applications and mobile applications which were based on client/server architectures. However, to take true advantage of technology, what companies need is the ability to serve customers at scale and the ability to draw insights through their data with intelligent systems. The precursor to these benefits is moving to the cloud and taking a platform-centric approach respectively.
The genesis of a Platform
In general, platforms are driven by four key factors:
- Building blocks, which move towards solving all problems over the cloud, unlike traditional systems that offer only order management.
- Core business model, which precludes the platform from competing with its customers.
- Trust factor that ranges across not only an increasingly open source technology approach but also business policies stating that the data created by the business customers is the property of those business customers, and not of the platform.
- An end-to-end approach of digital technologies that allow customers to transition seamlessly from on-premises technology to the cloud, quickly automate key functions across the organization and enable an agile movement into entering new verticals.
The need for a mutual fund platform arose as a result of a multitude of factors that have converged towards the end customer. This has mandated the need for any mutual fund organization to convert into an investor-centric organization. Subsequently, this can happen only by undertaking a shift towards becoming a digital business which requires technology to infiltrate across the organization. Thereby, the platform makes itself indispensable to the organization’s ability to compete, to grow, and to create new value for customers.
What does a helpful MF platform look like?
The trust aspect
- Who owns the data? – A helpful MF platform will have a team that spends time with various stakeholders at the customer’s end to clearly inform them that their data is their data. In addition, the platform’s IP and innovation are extended to all the customers as they move along the journey of digitizing their businesses. This is huge in terms of building the customer’s company especially in complex regulated markets like Indian mutual funds, and finance in general. In addition, a healthy sign is of the product and engineering teams actively engaged with the customer’s employees to help them navigate through with a list of things like integrations, data privacy, security and so on and so forth.
- Your margin is not my opportunity – Be it the manufacturers or the distributors/advisors, each one should be excited about moving to a cloud-based platform with the comfort that the platform is not interested in eating into their hard-earned margins or will not suddenly begin charging additional amounts to them.
The business aspect
- Investor centric – A true MF platform has features that any B2C distributor would want to offer to their investors.
To quote Mr. Suraj Kaeley, President – Sales & Marketing at UTI Mutual Fund,
“The new generations of investors largely look forward to digital mode of transactions. A digital strategy built around enhanced used of technology can fit well into ever changing environment.
We believe retail fund distribution is undergoing a structural change. Opportunities are plentiful and distributors need to provide a comprehensive solution catalogue in alignment with the needs of customers. A customer centric approach, technology enabled service capability, a healthy mix of customer types and a diversified product range is the way to achieve success for the new age distributor/advisor”.
- Kickstarting new revenue streams – A fintech platform geared towards mutual funds would enable companies to take the bold decision to shelve their current workflows and migrate completely onto a PaaS model. This helps them grow their relationship management team, advisory team and drive topline revenue as well. The best part is that it helps them be much more agile in their implementation. In addition, if the platform has been built by a team that has been around for almost a decade serving a variety of finance companies, this aspect should add to the customer’s confidence to diversify their product offerings like insurance, etc.
- Not COGS – While a platform is typically perceived as a manufactured product with COGS (cost of goods sold), a helpful API only platform instead focuses on transforming the customers business. When a platform company looks at a distributor or a registered advisor, it does not look at the development costs, server costs or the operations costs. It looks at the day in a life of the distributor from different angles – from operations to complex reports like capital gains / XIRR to RTA integrations to machine intelligence capabilities respectively. It then distills them into friendly APIs that can help reason over investor acquisition and retention inefficiencies.
- While multiple products continue to portray themselves as the “real platform” offering, what they are essentially working on is a commodity business and a race to the bottom with low/nil prices. There are certain aspects to a fintech platform which will always be commodities. However, there are other aspects like domain expertise, complex reporting like XIRR, handling scheme categorizations, KYC solutions, etc that require R&D investment, teams comprising of regulatory experts, domain experts ,and product experts. An MF platform will have all of this come together to provide a true API only offering for distributors. A helpful platform will have this as an advantage in terms of COGS. The ability of a platform to operate at low prices then becomes a function of the platform services that are being offered, instead of racing to zero on commodities.
The technology aspect
- Building Blocks – A platform that does interoperability and flexibility since before they became buzzwords would be classified as helpful. A 100% heterogeneous platform makes multiple complex scenarios like reporting or orders or KYC available through simple APIs. Mutual fund related building blocks form the Platform as a Service model, which powers companies to build their customer experiences with friendly APIs for whatever they deem as an immediate business need.
- Security – The security layer built as a part of SEBI recommendations and regularly evaluated by government regulatory bodies helps customers quickly become compliant with whatever new security, data privacy and regulatory concerns they could be faced with. And if customers choose to enter new verticals like insurance, so the flexibility that comes with already being compliant acts as a huge shortcut for time to market.
- Scale – As an example, a platform processing ₹ 163,00,00,000 in just a few months is a leading indicator of the ability to handle large volumes. And the deep investments made in this space having a common framework for KYC, order management, ledger, payments, and reporting usually morphs into a common development model applicable to all customers. A helpful platform would have taken into consideration all of this and been built from the ground up with open source and scale in mind.
For many financial companies serving investors today, the best part of the story is that they are in the opening chapters of the mutual fund book. While companies who have made the monumental mental shift from being just a distributor to a fintech player are lapping up the rare full-fledged platforms available in the market, the bullish part of the story is that the opportunity to delight end customers is never-ending. Hence, the most investor-centric platform will not just help its customers or their end customers, but will also help the mutual fund industry gain a significant upside through increased adoption.
- Conversations with fintech companies
- Forbes cloud columns
- Cafe mutual columns