FNZ’s recent acquisition of Australian tech rival GBST has highlighted a disparity between the pace of consolidation among UK platforms and the technology companies that underpin them.
Platforum research director Richard Bradley highlighted in a recent blog that by the end of 2017 the top 10 European platforms had a market share of 56%, which covers 75 B2B platforms. This proportion rose to 61% by the end of 2018 and will stand at around two-thirds once all the current transactions obtain regulatory approval.
In comparison, despite much talk of consolidation over the years, the UK platform market remains fragmented. It comprises approximately 30 B2B platforms and a similar number of D2C/B2C, and despite a few acquisitions, with Zurich’s platform being the latest offering on the market, the number of platforms has remained remarkably stable for the last decade.
Instead, there has been more movement on the underpinning technology where platforms have been gradually shifting onto just four main technology providers: FNZ, Bravura, SS&C and GBST.
But CWC Research founder Clive Waller argues that while consolidation has created the view that there are too few tech providers dominating the industry, there are more providers than just FNZ, Bravura and GBST.
He says: “FNZ appears to be dominant, but in the platform world in the UK, they are dominant in the old life insurance companies world – Standard Life, Elevate, Zurich, Aviva and Old Mutual. That is a shrinking world. Standard acquired Elevate and the remainder of Zurich is up for sale. Aegon, Ascentric, Aviva and Old Mutual have all had tremendous replatforming issues.”
In July, FNZ completed its acquisition of German tech platform ebase and JHC is set to acquire GBST for AUS $269m (£151m). In May, technology provider Iress acquired QuantHouse, adding to its purchase of Financial Synergy in September 2016 and Pulse in September 2015. Intelliflo has also been active, acquiring i4c on 1 August.
But why are platforms not consolidating nearly as much?
Platforms struggle to make money
Langcat founder Mark Polson says the increasing consolidation among tech firms is because they move faster than platform operators.
“A tech firm can reasonably operate two or three different system architectures for different markets and take elements of each to make it more efficient, perhaps on the way to creating one unified proposition which serves different markets. We’ve seen that with both Iress and FNZ.”
He adds: “Platforms themselves have a hard-enough time making money; the idea of bringing two or more together and running them has been tough to swallow.
“Generally speaking, the platform market itself is still quite young; firms are moving through their own technology journeys and aren’t necessarily in a great position to consider inorganic growth.
“Aegon and Interactive Investor are two notable exceptions to this, but no one should underestimate what it takes to bring two platforms together. That’s why you’ve seen changes in ownership, but relatively few full-scale migration exercises.”
But Nextwealth director Heather Hopkins says although platforms are considered by many to be a piece of technology, they play a very important role in customer service. “Technology can benefit from scale but service doesn’t always. I think this is one of the main reasons that platform consolidation hasn’t happened at the pace many expected it would.”
But Hopkins adds that on platform technology there are clearer benefits to scale and so there is a stronger case for consolidation. “For example, scale technology providers might be able to offer better protection for cyber security attacks.”
Competition is key for choice
The lack of consolidation among platforms is welcomed by some. “In terms of platforms, choice is a great thing and I’m not sure that providers disappearing would benefit anyone,” Polson says. “Also, some of the most profitable platforms are the smaller ones.”
Thameside financial planning director Tom Kean adds: “Here in the UK we are determinedly independent as a breed, so I suspect that filters through to our wish to have lots of choice of platforms. I totally get that size matters with the corresponding economies of scale, but with Elevate’s recent price reductions, that side of the equation seems to have hit a point of stasis, so it may not matter to us.
“Logic suggests it tends to gravitate that way, that size matters, but so does competition.”
MFP Wealth Management chartered financial planner Justin King agrees, arguing that the smaller firms have more opportunity to be bespoke.
“The consolidation provides, I hope, a kind of financial security for the providers. But then again, does it cause a lack of competition? A lot of industries have merged on the basis that they’re going to lead to economies of scale but often it hasn’t resulted in that. I think I would have welcomed greater competition in the marketplace, rather than it all ending up with FNZ because with competition generally comes innovation.”
He adds: “I think the firms that are using the in-house technology have got an opportunity to be more creative or to challenge the marketplace. The interesting developments we’re going to see are from people like Intelligent Office, with the capital behind them from Invesco. They’re going to make inroads into that space.”
Lack of platform consolidation surprises
But while some have argued platform consolidation is not required, others believe it has its benefits and should have come sooner.
Shore Financial director Ben Yearsley says he is surprised there hasn’t been more consolidation in the platform sector. “There are still too many platforms and a lot are sub scale and not that profitable. Consolidating some would certainly help. In addition, more consolidation should mean a greater ability to innovate and add new features.
“I suppose consolidating platforms is much harder than one tech company buying another; having to move assets, get client agreement etc. Whereas do many end users really care who owns the tech behind the scenes?”
Hopkins adds: “The operating model of platforms doesn’t depend on scale for success. That said, I still believe there will be scale players that are able to drive down price and use their scale to advantage. Niche players can differentiate themselves on service for functionality.”
