Economics can teach us a few lessons in our approach to technology set-up.
From an economic perspective there is a lot of risk in being a producer. It requires commitment to fixed infrastructure — buying it, setting it up and maintaining it — in order to develop the assets to sell.
Product diversity requires further expenditure on fixed infrastructure. The ties to specific products also bind revenue to the cycles those products are exposed to, while changes in consumption of those products will directly hit profitability. There is
a constant pressure to reduce fixed costs and invest in R&D for new products.
In finance the products are akin to proprietary lending or investing.
The distributors are highly flexible, economically speaking. The investment they make in building up a network can be turned to support a range of products and even services. Relationship-based businesses are based more on value than they are on cost. The
challenge is to maintain the connections and expertise needed to fulfil client demand. The pressure is to scale up the network and deliver differentiated service.
Financial services firms in this bracket are broker dealers and investment managers.
What does this have do with technology?
We often approach our technology with the psychology of a producer. Build a system to make what we need; plug in the data inputs; feed the output direct to the consumers in the organization. If it turns out that needs change, we either have to get the system
to build a new product, or we build a new system.
The result is morass of systems pushing information from one point to another. Rerouting those flows is a risk, and unpicking them difficult. This is particularly problematic when business needs change, for example when data is needed to support a new regulatory
The attitude that makes more sense is that of the distributor.
Your broker can find you more relevant investment products than a mortgage originator. Your investment manager has a greater range of strategies for handling political risk than your pension provider.
Technologically this approach is straightforward. Established systems set up as “producers” can still be connected up by the distributor, providing a clearer map of the firm’s processes. External providers can be brought on board easily. Off-the-shelf technology
either on-site or accessible as a cloud-based service creates a flexible cost base that can grow and connect easily.
There are several possible avenues that financial services regulators may take in the near future. They will differ across jurisdictions and may create quite different regimes. For firms with rigid business models this could have a significant negative impact.
More adaptable businesses will thrive. However, they can only do so if their own systems are equally adaptable.
Technology managed as a “distributor” and not a “producer” will give its clients – the users – a far better ability to handle an uncertain future.