What are platforms in Finance ?
Just when you thought Fintech was all that the financial services industry was competing with, there comes a new kid in town, Platforms. This new business model emerging in finance brings together two or more groups, usually buyers and sellers, helping them to seamlessly transact. Platforms do not own the means of production but rather help facilitate the connection between parties.
Platforms are engineered with a foundation built on digital ecosystems. The financial industry has already seen this model with the advent of credit card companies – platforms that allow customers to have better access to credit. Platforms are now seeping deeper into banking territory aiming to get a piece of the profitable distribution side of the banking business. What could be worrying for the financial services sector, is platforms will now be able to create a one-stop-shop for financial products and services which could be at the centre of the customer journey while making big financial decisions.
In short: 7 Digital financial platforms facts & stats:
- 5 of the top 10 financial institutions are now platforms
- Platform-based institutions’ valuation continue to grow, by an average of 739% for Visa and Mastercard in 10 years
- Financial platforms are generating over twice as much revenue per employee than traditional institutions
- Financial platforms are generating 3x more profits per employee than traditional institutions
- Platform-based financial institutions have over 2x more consumers than non-platform institution
- Platform-based financial institutions have 65x more consumers per employee than non-platforms institution
- Platform-based financial institutions are valued over 10x more per employee than traditional FIs
5 of the top 10 financial institutions are now platforms
How has this decade of technological changes affected the world’s top 10 financial institutions?
By looking at the marketing valuation, the top 10 financial institutions changed drastically. Only 4 of the Top 10 financial institutions in 2010 remain at the top, whereas companies like Visa, Mastercard or Paypal, which leverage the platform business models, overthrew incumbent financial institutions.
Platform-based institutions’ valuation continue to grow, by an average of 739% for Visa and Mastercard in 10 years
The variation in marketing capitalisation is a strong indicator of success. By leveraging network effects, financial platforms can increase their efficiency in operations, or enter new markets quicker than their competitors, among other competitive advantages. Hence, the correlation between what the platform business model can achieve and their increased market valuation comes with no surprise.
Financial Platforms are generating over twice as much revenue per employee than traditional institutions
Closely linked to efficiency, the revenue generated per employee measures how successful companies are using their employees. By looking at financial incumbents, none of them pass the threshold of 0.5 M per employee, where by comparison, digital platforms are twice as successful. The key to success is not about employee efficiency, but the technology used behind the services provided: digital platforms.
Financial Platforms are generating 3x more profits per employee than traditional institutions
This second metric is also used to measure a company’s success as converting employee productivity into profitability is not an easy task. Following the path of Big Tech players, Visa, Mastercard or Ant Group can generate over £300,000 profits per employee. A number far to reach for traditional banks with legacy systems.
Platform-based financial institutions have over 2x more consumers than non-platform institution
How big can banks be? That’s a question we asked ourselves in 2020, and found out that technology is the ultimate enabler for scaling its client base. The Chinese fintech giant AntGroup has today more than 1.3 billion clients, compared to – only – 200 million bank customers for the renowned Citi group. By looking at the progression of Visa and Mastercard, we understand that financial players prefer acquiring “users” instead of “clients” which highlights the change in strategy when it comes to digital platforms.
It is important to note that it can be achieved only with the help of artificial intelligence, for example in order to save costs while still delivering outstanding customer service experiences.
Platform-based financial institutions have 65x more consumers per employee than non-platforms institution
The wave of digitisation that banking is seeing can be illustrated by the ratio of customers per employee. This graph tells us that by leveraging technologies, financial platforms enable the acquisition of more clients than incumbents, but also shows that today’s customers’ preferences are towards digital services (digital banks for instance), rather than traditional banking.
On average, traditional financial institutions have 14 times more employees than platforms one. Hence, platform-based institutions yield more value per employee, up to 10x more. Ant Group, has a market-cap-to-employee ratio of 26.1M compared to the $0.5m/employee of China Construction Bank. This simple but eye-opening comparison explains that digital platforms’ technology allows for exponential capitalisation of financial institutions.
Learn more about digital financial platforms today
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