The era of the platform economy is here.
Actually, it has been here for a decade or longer.
Think Apple, Google, Airbnb, Microsoft, Uber, Amazon, Square, Linkedin, Lyft, Facebook, and Tesla.
The majority of the most valuable companies globally are now based on a platform business model: “the creation of digital communities and marketplaces that allow different groups to interact and transact”1.
And in the financial services space?
Let’s name just a few – Robinhood, Envestnet, eMoney, Acorns, Oscar, Xero, RightCapital, Personal Capital, Avant, Blend, Chime, Brex, BrainTree, Enfusion, Verifi, Circle, Opploans, Transferwise, Venmo, Gravity Payments, Coinbase, etc etc. The list goes on and on.
Fintech platforms are remaking the financial services industry. Redefining the “experience” of every corner of financial services. And thus – redefining expectations, across the value chain, from manufacturing to distribution to consumers.
Broad principles of the Fintech platform era:
3 predictions over the next decade
Actually, it has been here for a decade or longer.
Think Apple, Google, Airbnb, Microsoft, Uber, Amazon, Square, Linkedin, Lyft, Facebook, and Tesla.
The majority of the most valuable companies globally are now based on a platform business model: “the creation of digital communities and marketplaces that allow different groups to interact and transact”1.
And in the financial services space?
Let’s name just a few – Robinhood, Envestnet, eMoney, Acorns, Oscar, Xero, RightCapital, Personal Capital, Avant, Blend, Chime, Brex, BrainTree, Enfusion, Verifi, Circle, Opploans, Transferwise, Venmo, Gravity Payments, Coinbase, etc etc. The list goes on and on.
Fintech platforms are remaking the financial services industry. Redefining the “experience” of every corner of financial services. And thus – redefining expectations, across the value chain, from manufacturing to distribution to consumers.
Broad principles of the Fintech platform era:
- Ecosystems and connectivity are key
- Customers now engage product manufacturers through “platform distribution”
- User experience (UX) is fundamental to acquisition and retention
- At scale, Fintech platforms change industry dynamics
- Winners (and survivors) adapt their business model quickly
Some predictions
Predictions are always a dangerous game. But if one takes the broad dynamics of platform-based economies as largely constant through every sector, we can also look into the near future for the Life and Annuity sector.3 predictions over the next decade
- Life, Annuity and LTC business origination (new business) will proportionately and dramatically shift towards multi-carrier distribution platforms
- Life and Annuity distribution will consolidate onto 3-5 leading “mega-platforms”, owning over 50% share (∗similar to financial planning software landscape)
- Distribution focus will shift from traditional, back-office “agency management platforms” to field technology “sales enablement platforms”
Unstoppable drivers
There are several unstoppable forces and accelerants now at play. Each of these trends, in and of itself, is enough to shift the structure of the sector. However, when one considers all five in the aggregate, the emerging future is a foregone conclusion.- Staggering investment in Fintech: Global Fintech investment reached $44 billion in 20202, definitively underscoring the fact that we are in the age of Fintech and Insurtech platforms.
- The march to Best Interest (BI): There is only one way to accomplish this efficiently and cost effectively — a technology platform.
- New distribution business models: The traditional distribution business model within the Life and Annuity sector is changing, with a new focus on field-oriented digital sales enablement.
- The weight of market expectations: Every single financial services experience today is digital, visually intuitive, interactive and easy to understand. Every single one – except the life and annuity sales experience.
3 recommendations to win
So how can Life and Annuity insurance carriers and distributors adapt and win? I have three recommendations to start –
An emerging dynamic of the platform economy is the ecosystem. It is critical to buy the flexibility to thrive in an ecosystem. The leading Fintech and Insurtech platforms bring connectivity and pre-built integrations to the table.
There is another central reason to adopt the dominant emerging platforms early, and ahead of your competition. You can ride the opportunity of a “network effect”. A network effect refers to a situation in which the value of a product, service, or platform grows based on the number of buyers, sellers, or users who leverage it.
Leading distribution platforms will be rapidly growing the number of customers you can reach – through one efficient digital channel. (Of note, it becomes increasingly painful and inefficient to do business outside of a platform network as well.)
Smart counsel today is to adopt and use new “best of breed” third party platforms early on.
Digital innovation “lead time” or “cycle time” is becoming an increasingly deciding factor in the emerging winners and losers. And the stakes are higher than ever. One might say that embracing digital platforms has “compounding returns”. Competitive advantage can double, or quadruple based on an organization’s digital fitness.
Develop a platform-led distribution strategy
Every distributor should now be thinking about how this emerging context will impact product sales, distribution relationships and the market-facing business model. There are several long-term strategic questions to be debated. Here are just a few:- Business origination: What will be the impact on new business origination? And where will it come from over the next 5 years?
- The wholesaling operating model: What is the future model of wholesaling? How will wholesalers engage and service the channel?
- Channel sales strategy: Where will my target customers be, and how will I reach them?
“Get on” the dominant platforms early
It is simply not possible to compete with $44 billion in Fintech platform investment. If you are a national distributor or BGA, choose wisely what platforms you elect to “buy”.An emerging dynamic of the platform economy is the ecosystem. It is critical to buy the flexibility to thrive in an ecosystem. The leading Fintech and Insurtech platforms bring connectivity and pre-built integrations to the table.
There is another central reason to adopt the dominant emerging platforms early, and ahead of your competition. You can ride the opportunity of a “network effect”. A network effect refers to a situation in which the value of a product, service, or platform grows based on the number of buyers, sellers, or users who leverage it.
Leading distribution platforms will be rapidly growing the number of customers you can reach – through one efficient digital channel. (Of note, it becomes increasingly painful and inefficient to do business outside of a platform network as well.)
Smart counsel today is to adopt and use new “best of breed” third party platforms early on.
Play to win and embrace the change
The Life and Annuity sector today falls into two camps: early adopters (change embracers) and late adopters (change laggards). Waiting to adopt emerging technology used to be wise counsel. But in the era of Moore’s Law, this is no longer a recipe for winning.Digital innovation “lead time” or “cycle time” is becoming an increasingly deciding factor in the emerging winners and losers. And the stakes are higher than ever. One might say that embracing digital platforms has “compounding returns”. Competitive advantage can double, or quadruple based on an organization’s digital fitness.
Benefits of early adoption
Understanding the dynamic of new distribution technology platforms – and how to win with these platforms – takes time. BGAs who adopt first, stand to benefit from those compounding returns and will be well positioned for market-leading growth and profitability in the decade ahead.1 The Platform Economy, The Innovator, Jennifer Schenker ( https://innovator.news/the-platformeconomy-3c09439b56)
2 The state of FinTech: a recap of 2020 and a glimpse into 2021, FinExtra, 2/8/21 ( https://www.finextra.com/blogposting/19849/the-state-of-fintech-a-recap-of-2020-and-a-glimpse-into-2021)
