Welcome to METACO TALKS – Live conversations with the people operating at the frontier of crypto innovation: entrepreneurs, bankers, investors, fund administrators, traders, analysts and other crypto and digital asset market participants. Our objective is to help the broader ecosystem navigate this complex environment and unlock the market opportunity.
This podcast is hosted by METACO – the leading provider of security-critical infrastructure enabling financial institutions to enter the digital asset ecosystem.
Our guest is Ben Robinson – co-founder of aperture.co, a strategy consultancy helping banks and fintech companies launch digital era business models. After working for Exane BNP Paribas as part of an award-winning tech research team, Ben joined Temenos, a market-leader in banking software. At Temenos, Ben was Chief Strategy Officer, and ran the Temenos MarketPlace, its platform for connecting banks and fintech scale-ups. Among other topics, we discussed: why traditional industry analysis and software vendor assessment is broken; why demographic changes are accelerating digitization in wealth; why new business models are necessary; why aperture highlights METACO as a company to watch in its latest 4,000 words report ‘Digital Age Wealth Management‘.
Play video - Why Crypto is the Key to the Future of Wealth Management with Ben Robinson
Seamus: Welcome to METACO TALKS. Our guest for today is Ben Robinson, who is the co-founder of aperture, a strategy consultancy that helps design, build, launch and scale digital era businesses in the financial service sector. Before Ben started aperture, he worked at the banking software company Temenos where he was chief strategy officer.
And prior to that he was an equity analyst covering the software and it sectors. Today we’re going to be discussing the findings from a new 40,000-word report that aperture has published on the wealth industry, titled “Digital Age Wealth Management“, including the role of crypto and blockchain in wealth management.
Ben: Hi Seamus. Thank you very much for having me on the show. I’m a big fan.
Seamus: Well, great to have you here. So, why don’t we just dive right in then? Digitization it’s not a new phenomenon. I mean, why do you think this is accelerating private banking and wealth management?
Ben: Yeah. So you’re right.
Digitization is not a new phenomenon. I would say we almost have like digitization fatigue, right? Because we keep talking about it. And I think we were sort of talking about it in a limited context as well. We tend to talk about new technologies, new customer channels, and we forget that digitalization is much more, right?
The much more interesting stuff is the sort of second order implications when everything becomes more networked. But anyway, why do we think digitalization is accelerating in wealth management? Well, there’s always like a catalyst. People don’t spend loads of money on technology without a catalyst and a lot of parts of banking, I think regulation is acting as a catalyst PSD2, for example, but in wealth management, we think it’s more demographic changes that are starting to catalyze digitization and new business models. And, by that I’ll give you one example, which is. I think it’s something like $1.5 trillion is being passed down from baby boomers to their kids or grandkids every single year.
And those kids and grandkids have very different expectations about what kinds of services they want to receive the channels over which they want to receive those services. And I think that’s acting as a much stronger catalyst for banks and wealth managers to change. And to change their business models than just the fact that cloud computing exists.
And then there are others, right? There are other catalysts too. I mean, for example women are controlling a much larger proportion of assets than in the past. And they have very different, needs and preferences and they also have a [00:02:30] much higher churn rate than traditional male customers.
And so I think all of these things are starting to come together and, it’s the risk of losing customers. I think that’s sort of concentrating the mind for wealth management, private banks,
Seamus: It’s an interesting comment on the generational change. I mean as Metaco is involved in the crypto asset space.
And we talked to private banks. For them to a degree, getting involved is almost existential. They’ve got their own client base, which is probably 60 plus. And how do they engage with the millennials that are inheriting all this wealth? We want to trade crypto. And as you say, through new digital channels, particularly cases, swiss banking. And previously it was about privacy and secrecy and passing your account balance over on a napkin at a fancy restaurant, not engaging through digital channels.
Ben: I think you’re raising a very good point, which is, this is what I think we need to take as a broader lens when we think about digitalization because, everybody said one of the hardest things to overcome for a private bank or a wealth manager is cultural factors, so you’re right. For generations, they’ve thought about themselves as kind of locking up customer assets in and how did they suddenly become part of a network where they help introduce customers to third-party products and services. I mean, these things are quite really quite difficult, cultural changes that need to take place in addition to everything else, the technology, the business model, et cetera.
So I’m not saying digitalization is easy. I’m just saying that we think it’s not accelerating.
Seamus: It’s interesting what you just referenced here you had some interesting comments in your report around business models, this kind of supply side versus demand side. Why are these business models changing and why is that so relevant to what management?
Ben: Again, the risk is laboring the point, right?
I think, technology, by itself, doesn’t normally result in material changes in propositions. What normally results in changing customer propositions is new business models. And the reason we stress that so much in the report is for two reasons. The first one is that if you don’t take a business model approach to digitization, you’re probably going to make a whole bunch of bad choices along the way. So many projects start out because a board member or a CEO or whatever will read something in the FT, right? Coming to work on a Monday and say, okay, innovation team, your job for the next two months is to go out, find the best AI and run a proof of concept and those things then they’re so seldom deliver any value, right?
Because they’re side projects, right? They’re peripheral that can be easily killed off by the corporate immune system. And also, then they weren’t requested by the business. And so these things are really vulnerable. So I think unless you take a business model approach you probably make some bad choices.
[00:05:05] And then secondly, you have to make a conscious choice about where you’re going to sit in the new digital value chain. And the way we sit, like at the risk of over-simplifying is you’ve got almost like three choices you can attempt to aggregate demand, right? So you can use the pull of your existing customer base to try to aggregate all the services that those customers might want.
So, rather than just sort of, building a portfolio for them, you help introduce them to the best ESG provider, you helped introduce them to, unsecured lending that they might need. You help introduce them to legal services they might need. And I think that’s not necessarily an easy thing to do because there’s cultural change needed, you’re competing against other aggregators, right? And then the other choice is you attempt to aggregate supply, right? So, an example here is Goldman Sachs with Marcus, right?
So they’ve made a decision that they’re going to offer up their regulated platform to others that either want to build propositions on top or want to embed banking into their distribution channel. Because that’s another option. Which is you offer up your bank, your license, your custody services, your balance sheet to others.
And then the last one is that you could be some sort of niche provider. I.e. you might choose that you want to become really specialized on say structured products or something. But the problem is that these things have to be conscious choices because there’s a lot of changes that need to be made in order to arrive at that destination, as we talked about technology, cultural changes, et cetera. And I think if you kind of sleepwalk into this and not make a conscious decision, then the worst outcome is the market decides that you’re a niche provider and you haven’t adjusted the cover the cost base the proposition to actually succeed in that, with that business model.
And so, I think you really need to take a conscious choice here and I think [00:07:00] all of these things will require long-term strategic planning. And you’ve got to start now to be figuring this stuff out.
Seamus: And how does the bank, or how do the financial institutions look at that framework, the technology implications of potentially moving from this monolithic supply side sort of framework to the opposite extreme, the embedded finance side.
[00:07:19] I mean, how do financial institutions start that analysis?
Ben: The truth is that not many people are taking this kind of business model approach yet, even though we would suggest that it’s like imperative. But I think the important thing to look at, if we think about the technology implications of this is that banking is likely to split into three different layers.
Right? So if, if we accept the premise, that banking is going to become over time, more embedded in other services and other distribution channels, then the first layer will be distribution. And then we’ve talked about how, distribution specific for manufacturing. So you’re going to have a whole bunch of long tail of banking manufacturers.
And then what you’ll need in the middle is some kind of orchestration that matches the many manufacturers with the many distribution channels. And if they’re the different roles that you could occupy within the banking value chain, then the technology has to kind of mirror that.
So the way we see the technology stack kind of evolving is that you’re going to have interaction or channels that you can have some recordkeeping for the sort of manufacturers. And then you’re going to have some kind of orchestration intelligence system in the middle and when people look at what sort of systems that they need, I think that’s the kind of framework that they should apply to this. Which is, I’m going to need something that can enable me to orchestrate services, which means I need to pull together multiple data sets.
[00:08:50] So if I’m going to be able to offer up kind of contextual advice, contextual offers then I need to pull together more than just financial information. They need to understand contextual information about my customer location, information about my customer. And then if you’re going to aggregate services as well, again you can’t do that in the sort of record keeping system.
You need to do that in a different system, and that requires you to have an extensible product catalog, for example. So I think this is the way that this would increasingly play out.
Seamus: You worked previously for a core banking system provider. If a bank is looking at this sort of strategy or this kind of change in their business model, an obvious question is, is there still a one size fits all solution? Can they go to a core banking provider and get everything they need?
Or is that an anachronistic way to think about what will fulfill their requirements?
Ben: I think the question is can a bank be able to provide everything you want overtime? And I think that the answer is no right? I think we’re heading into this new [00:10:00] world where everything is ecosystem based and, in the same way that banking will come become more ecosystem-based the systems have to become more ecosystem based.
So I think the short answer is it’s going to be really difficult. I wouldn’t say you couldn’t get everything from the same supplier potentially. Or the core infrastructure from the same supplier, but you’re going to need separate systems for interaction in orchestration and record keeping.
So yeah, I wouldn’t want to say that the suppliers that offer an end-to-end set of solutions are potentially anachronistic, but they have to have unbundled those solutions into three layers I would say.
Seamus: And at least in our space, the financial space the world is increasingly talking about a tokenized world. So consumer finance as we know is reinventing in token-based form. Do you think this applies to the crypto space?
Ben: Yeah, I think everything is heading in the same direction, because everything is becoming more networked and I think the most interesting part to play in the whole FinTech ecosystem and that applies to crypto as well, is that middle layer, because the characteristic of a record keeping system is something that has to just run as quickly as possible, be as scalable as possible. We’ll run in the public cloud and the channels, I think, as we discussed will increasingly probably not be banked proprietary channels. So all the value, whether you’re a system supplier on the one side or a financial services company on the other sits in that middle layer and they’re increasingly coming together.
Because, what was formerly sort of B2B or B2C, these things are kind of merging. And I think the whole banking as a service space, it’s super interesting because, is it banking as a service provider? Is that a technology provider? Is that a B2B2C financial services provider?
I think these things become quite blurred and I think in the crypto space you’ll see the same thing. You’ll start to see the same ecosystem evolve around crypto we’re seeing evolve around banking; you’ll need a platform that sits in the middle that can orchestrate between many issuers, many custodians, many trading venues, and then on the other side, between all the brands and all the distribution channels into which you would want to embed crypto assets, tokens, et cetera.
So I think, yeah, you’ll see exactly the same thing play out in crypto.
Seamus: We’re no longer looking at a model that’s a strict vertical, basically. It’s much more of many to many sorts of network and effectively my understanding, my takeaway from you describing is basically that the new core infrastructure for a financial institution or anybody operating this space is this orchestration layer described, right?
Ben: Correct. Yeah.
Seamus: Just for people who aren’t really familiar with what orchestration means, what do you exactly mean when you say orchestration?
Ben: I think the best description is the one you just used, which is if we’re moving to a world that’s increasingly networked, then it has to be a system that manages the interaction between all the different constituents of that network.
And what are the characteristics of that system? Well, it needs to be able to mesh together multiple data sets, it needs to draw intelligence from multiple data sets. It needs to be able to aggregate the offerings of many different services. So I think it’s a different proposition from a record keeping system because essentially it amalgamates the output many recordkeeping systems.
And I think the reason happening faster is because in the beginning, what happened with systems with the first phase of digitalization is it was important to allow the customer to self-serve to a certain extent. So a thin channels layer was opened up to the customer where the customer could query that balance or set up a simple payment order or whatever.
Now we’re moving into a situation where [00:14:00] so many other things are accessing our banking information. The first reason to split orchestration from record keeping is to cope with just the increase in interactions. So if every time I cleared my bank balance, that requires me to query the recordkeeping system.
It’s just not going to scale. And the model here is e-commerce. When we use Amazon, for example on our mobile phone. We can open up the Amazon interface. There’s a distribution system that sits behind that.
So if we’re querying, looking for a book, it will give us the options of the books that are available. And then once we select something, it will asynchronously send that order to be picked or it will asynchronously send that order to the accounting system. And that’s the reason it does that is because, that distribution system it can’t query the warehouse, every time somebody’s searching for something, because it wouldn’t scale.
And also it needs to pull into that distribution system, all the [00:15:00] offers from all the Amazon merchants distributing through Amazon. So that’s kind of like the architectural model that the banks will have to adopt. We see the same thing more or less already in capital markets.
So banking will have to mirror to much greater extent capital markets in the way that it’s set up.
Seamus: To a degree, would you describe it as much more complex landscape? You mentioned in the wealth management report you published that enterprise software analysis is broken.
I think for those procurement departments that can navigate the space; it must be quite a challenge how to navigate this. And then I think you’ve talked about in your report about it, you’ve got a new methodology to fix it. What is that?
Ben: Yeah, we introduced a new software methodology or evaluation methodology, which we call the market map.
And the reason we did it, it’s because with the work that we do with companies that quite often say to us, okay, we suggest to them what might be a business model transition that makes sense. And then the next question is, okay, what software do we pick to be able to deliver that new business model?
And if you go to some of the traditional vendor analysis. It just doesn’t help because: a) these analyses are sort of pay to play, right? So there’s very few providers in the analysis and, and obviously if you pay it, the likelihood is you’re quite large vendor.
Secondly, we think the criteria just doesn’t make sense to them. And also it also favors larger vendors. So this sort of things that these methodologies look at is functional breadth. And we would argue that in this new world of SaaS, software and APIs, and so on, it’s much easier to source functionality than it was in the past.
Integration has become much easier. So functional breadth matters less than it did in the past. And then the other stuff that they tend to look at is the maturity of the vendor. So [00:17:00] how many integration partners is it going to have? How many offices is it going to have? What’s the annual revenues, how many employees they have and that sort of stuff?
[00:17:07] It just doesn’t seem that important if you’re trying to choose the best solution. And then the last thing is, the whole waiting of functionality versus nonfunctional characteristics of this software for us is completely wrong. And I’m not saying this is a hundred percent definitive rule, but more or less the older the vendor, the less likely that they are to score what are non-functional requirements, because they’ve got so much technology there.
And so when we did The Market Map for wealth management, in fact, I’ll show it to you. I was really impressed with Mike McGlone, a couple of weeks ago, shared his screen.
Seamus: Yeah it felt like we were on Bloomberg channel, so that’s great. We can do that. It’d be wonderful.
Hold on one second. Yeah.
So, let me just skip to the market map. So this is what it looks like for wealth management, right? So, we’ve chosen completely different criteria. We’re interested in the extent to which a provider that can enable a wealth manager or private bank to introduce new technology.
This isn’t specific to private banking, by the way. This could be applied to any industry. And then the other thing we’re interested in is the extent to which the provider can help the wealth manager or private bank to change its business model. And what’s interesting is we, first of all, show how these vendors look in the old paradigm on conventional criteria.
And then we show how they look on our new criteria. And the interesting thing is nobody stays in the same place, right? Six vendors move up, seven vendors moved down. So as well illustrating the extent to which the criteria different, I think it really illustrates the extent to which there’s a changing of the guard.
Because the things that used to matter in the past just don’t matter to the extent anymore. So if you think about it, when integration was really hard, it made sense to buy a very, very broad application because integrating all those different parts would have been hard.
So it made sense to buy SAP R/3, because you had, accounting, warehousing, all that stuff together in one application, but it makes less sense to do that now because the world has changed. And also as we’ve discussed, banking is increasingly breaking up.
So yeah, so we felt it was time to introduce a new methodology and we’re going to be applying this to other sectors and other segments of the financial services.
Seamus: It’s fascinating. So what comes to mind when I think about let’s say this kind of a quadrant framework here. I mean, the first thing that comes to mind is Gartner’s magic quadrant.
How would this differentiate? Is that one of the legacy companies you’re talking about as well?
Ben: I didn’t really want to be so specific. To criticize any one provider, but I think it’s fair to say that all of the providers use more or less the same criteria. If you were to look at an evaluation, like the magic quadrant for say core banking, right?
First of all, there aren’t very many vendors on that quadrant. I think there’s sort of six or seven, right? Maximum. And then they’re all in the top right-hand quadrant, because of all the vendors that are all in there they’ve existed for a long period of time.
They’re all functionally rich. They’ve got lots of offices, et cetera. It’s actually not even that helpful to help you to build a short list of vendors you might want to look at. And then if you actually look at the names that are on there, it’s missing some really critical ones, we would argue something like Thought Machine should be something you should look at, if you want to run really high scalability, really low cost per transaction. It’s not on there.
[00:20:54]? I think from our point of view is it was time to take a fresh look at this.
[00:21:00] [00:21:00] Seamus: [00:21:00] Question here: I think you’ve answered this in part, so we can read it to hear this. The split in wealth management architecture stack is a very interesting record versus intelligence orchestration versus engagement.
I wonder does that mirror, at least for tails will happen, the crypto tech stack systems of records such as custody being separate from intelligence while engagement being an invisible or embedded on a day service. So that, that was the question. And maybe just put it in the context of are you also going to be looking at it?
A crypto map, the same sort of market map around crypto.
Ben: Yes, we are. Crypto is, I think probably the one we’ll do next or next, but one. First of all, I don’t think there’s anything that looks orchestration systems full stop. So I think this is a gap.
And then what we’re going to do is look at these segments one by one. So I think that if we were to even draw a quadrant of the most interesting markets for us to look at, crypto is interesting because it’s new, because nobody’s really looked at it through the lens of orchestration systems.
And there are very few vendor analyses anyway. So we’ll definitely do crypto. One point I wanted to make earlier on, which was, I don’t think we talked too much about the relevance of crypto to wealth management yet, but yeah, you talked about it being a bit existential, but I mean, you mentioned how many private clients have been asking over the last year.
Can we get some Bitcoin exposure in our portfolios at the same time Bitcoin is going up, I think at about 500%, 600% in the last year. Yeah, you’d be pretty annoyed if over that whole period, your private bank said, no, our policy is not to have anything to do with, with Bitcoin.
So I think Bitcoin itself and cryptocurrencies are becoming a more important investible asset, but I think the much bigger opportunities are around tokenization. And I think what’s interesting here is the reason I think is so difficult for people to get liquidity for some of these assets.
What people call non investible assets, passion, assets, race horses. Banks still operate in this vertically integrated monolithic structure. If you were my private banker Seamus, and I came to you and I said, look, I need some cash.
I’m prepared to offer my race horse as collateral, you, as a bank would say, okay, that’s really difficult for us because we don’t know how to value a race horse; our risk model doesn’t allow for that kind of asset class, we’re really uncomfortable lending against that.
Whereas, I’m sure there are thousands of people out there who want to get exposure to race horses as an asset class. So I think increasingly banks have to have to make this mindset transition. Your value to them is as a customer, right? Not necessarily as somebody they have to up sell cross sell a whole bunch of services to you; and their value to you is to act as the conduit into an ecosystem of providers that can help you get what you need, in this case, some liquidity.
And again, when we talk about tokenization, people tend to focus on the mechanics of it, how will we do AML? How will we issue these tokens? If we’re thinking about security tokens, who produces the prospectus?
And I think all that stuff is interesting for sure. And we need to figure it out, but we need to look at this in the context of the platformitization of banking. And it’s kind of inevitable that this will happen. And so, all these things we’ll figure them out.
That mindset shift change is bigger than the technology. And so I always think like once you’ve figured out what your business model is, the hardest thing for you to then change is the cultural sort of impediments to introduce.
Seamus: And that’s a very good point. And I think, as he’s described, most people at the moment are focused on the technical aspects of things like tokenization, but that’s really missing the point of how it can transform a business model, a bank. And the example you described around the race horse one is a good one, the banks typically approach [00:25:00] lending as a balance sheet business, they lend versus the balance sheet where they can move into the tokenization space and leverage their network, which obviously they have the on-ramps let’s say, or the, basically the large client basis. And they can just go to a fee model facilitating basically that network to interact with each other, whether that’s one client tokenizes the other invests.
And they effectively broker that transaction and charge a fee for that. And they don’t need any leverage on the balance sheet at all, basically.
Ben: You’re right, it’s a less intensive asset business. It’s likely to be higher margin, but it’s also dramatically more scalable.
Seamus: Absolutely. I mean, the world is your oyster in that case, basically it really transforms the business model.
Ben: The hard thing is, because I suppose is, you’re going up against any platform that has loads of engagement, loads of customers. But I think the one advantage that wealth managers, private banks have, particularly vis-a-vis a retail bank, for example, is rich people are pretty serious about money, right?
And I think that the extent of trust that incumbent organizations have, should not be underestimated. To be an aggregator, you need some combination of trust and engagement and the private banks have plenty of trust, not that much engagement. I would argue that social media companies, e-commerce companies have loads of engagement, probably not enough trust, potentially to do well. Particularly some high net worth, ultra-high net worth type aggregation.
Seamus: Yeah, that leads very well into the question that just came up. How will the wealth management client experience look in three to five years today? It seems all the incumbent players do the same whilst they never really innovative startups seem to miss market acceptance. I think that’s kind of goes directly to the point you just made.
Ben: Yeah. I think there’s probably two avenues here, right? Which is we’ll use an aggregated service over time. I think this idea that you go to a private bank and they’ll offer you all their own products and services, limited range, and so on, is not going to be the way this plays out.
So instead, you probably either consume wealth management embedded through something else. At the moment, many of the super apps offer wealth management, right? It’s Gojek, Wechat, you could easily get access to mutual funds or ultimate investment services through your super app.
The employee wellness apps increasingly offer wealth management services as well as savings services. So you might get it through your employer, for example, or if you go direct to a wealth manager, that wealth manager will offer you a very broad range of services that help you do much more than just manage your wealth, help you to make better financial and commercial decisions.
So it’d be a much broader offering them when we used to and I also think, one of the things we have in the report is a lot of conflation of different customer segments, what was once the preserve over the ultra-high net worth, access to private assets, assets to private equity venture, private debt, real estate and this kind of stuff is increasingly being democratized.
So I think both a broad range of services and a kind of deeper range of services is what you should expect over time through wealth managers.
Seamus: So it sounds like basically if they get the business model reinvention right, they’ll get a much more scalable business going forward, much bigger opportunity potentially then than this effectively bespoke hand to hand sort of relationship delivers right now, which may not be fit for the future business
Ben: I know we’re running out of time, but it seems to me that to think about your business as, okay, the digitalization gives me the opportunity to offer exactly the same services but through a mobile device. I mean, this is a paradigm shift.
We should embrace it and we should figure out how we can change our business model. We deliver just a dramatically different proposition to the end customer. That’s the challenge and the opportunity here.
Seamus: That’s a nice summary, Ben. It’s been great to have you on. We’re going to wrap up. How can people find the report and how [00:29:00] can people get in touch with you?
Ben: Yeah, if you want to be in the crypto market map drop me an email. My email is firstname.lastname@example.org. If you want to read our report or the blogs and summaries we have on a website, you can go to aperture.co or aperture.co/the-market-map.
[00:29:25] Seamus: Well, thanks again, Ben for being here today. So our next Metaco Talks, we have on March 19th. We’ll have Alexander Bechtel, who’s the Head of DLT and digital asset strategy at Deutsche Bank. Thanks for joining METACO Talks today and see you next time.
Ben: Thanks Seamus.
Seamus: Thanks Ben.