Platformit?—?Part Seven?—?Platform Longevity Growth

In part six we explored the platform’s value proposition model. In this part (part seven) we will dig deeper into how the platform can maintain its growth via the “Longevity Growth” concept. The birth of this concept took place in another post (here), in case you are interested in excavating its origin.

As stated in the above post, for a platform to maintain its longevity growth, it must focus on the three pillars: producers of value (Investment Banks), consumers of value (Investors) and the ecosystem (Regulators and other stakeholders). To achieve longevity growth, all three pillars must evolve from the passive layer to the active layer to the interactive layer.

The Passive Layer is all about centralized coordination. Transactional layer with a primary objective to aggregate a known set of resources (assets, people, data, etc.) to facilitate a core interaction (Investment opportunity) between two or more parties toward achieving mutual objectives. The focus is on a single job to be done.

The Active layer is about consensus cooperation. This layer requires a more in-depth understanding of the context. The active layer embraces the scalable learning mindset: growing by exchanging knowledge, assets, data, etc. and by allowing a higher level of interactions and stronger relationships towards supporting multiple objectives. The primary aim is to shape a new context.

The Interactive layer is explorative and based on emergent collaboration, with an endeavor towards unlocking hidden potentials via shared vision. A network of sequential jobs to be done, toward enriching the totality of our experiences, with a primary objective to empower new creation.

The longevity growth is not merely based on a monetary ideology, the “growth” in longevity growth encompasses several value-creation layers (i.e., economic, knowledge, geographical expansion, customer discovery and acquisition, etc.).

In the previous parts of this story-telling white paper, we discussed how the fragmented investment banking industry misguidedly misaligned inwardly toward themselves. At the same time, we saw how the investors had been viewed merely as a source of cash inflow, as such the whole ecosystem was marginally utilized by investment banks as well as by investors. Accordingly, we envisioned how an industry-wide platform business model could fix such a problem. In this part, we will see how the longevity growth concept can help towards this end.

From a surface level view, longevity growth resembles a wheel alignment test. It will give you an immediate visual representation of any misalignment in the steering (trajectory realignment).

https://www.123rf.com/stock-photo/wheel_alignment Standard License

So, if we want to map the investment banking industry on the platform longevity growth, it will look like this.

The longevity growth can help the investment banking industry to expand into the active layer by understanding investors at a granular level. Banks must ask another question: “Why” in addition to “What.” In other words, to venture from the passive layer to the active layer, banks must understand the “Why” behind the “What.”

The “what” is about the investment opportunity (core interaction), they “why” is about the investors (consumers of value). Let us examine these two questions graphically;

What do investors want?

The conventional answer is to appreciate their wealth. If a bank focus on this basic answer, it will shift its focus from the investors to the objective (i.e., appreciating investors’ wealth).

Why do investors want to invest?

This question will open a new parallel of opportunities and choices. Only when the leaders of the investment banking industry realize that their institutions are means to bridging the gap between investors’ objectives, not ends, only then they will be able to rebuild a lucrative relationship with investors to achieve the real opportunities ahead of them.

With a deeper understanding of investors’ needs, investment banks can expand their explorations within the investment ecosystem to find new investment opportunities.

The longevity growth via the interactive layer invites you to see and to create value outside your value chain.

The Interactive layer can push the investment banking industry to pull the necessary elements to create and discover new demand as well as new supply.

Interactive layer under longevity growth is not about vertical integration nor horizontal integration; it is about collaborative integration. Let us examine this point via a simple question. From where do investors come?

If the question was, from where do Doctors come? The answer will be straightforward: a person becomes a doctor after entering a medical school for a few years. Study very hard, observe, participate in operation theater under supervision. Then she graduates with a degree that certifies the legitimacy of practicing the noble act of alleviating human suffering.

Surprisingly in the banking industry, an individual may become an investor by merely inheriting money from his/her deceased parents. Even worse, the Bank will classify him/her as an Accredited Investor.

Let’s be clear about one truth, inheriting money does not make you an investor; it will make you rich. Likewise meeting a regulatory threshold should not make you an accredited investor (although it does).

Let us not forget that Investment is a profession, that requires years of practice, hard work, and learning. Textbook-based curriculums and exams will not make you an investor; it will allow you to understand investments. Take any freshly CFA graduate and give him USD 10,000 to invest in the stock market on your behalf: lean back and observe how the market will eat him alive as one of National Geographic episode. Education is an integral pillar, but unless it is encapsulated with real-life experiences, it will not produce real value beyond its theoretical ripples.

What if investors can find themselves in a productive environment, surrounded by a culture of learning and supported by an ecosystem that gravitates skills, expertise, professionalism, experiences, resources, information, an abundance of relevant data and technological capabilities? What if all this can rest within the palms of investors’ hands?

Such an industry-wide platform can allow investors to actively engage with each other, with banks, regulator, and independent third parties in a way that is not possible or imaginable under the current model. Real-time coaching, mentoring, practicing and experimenting in a safe environment is the missing part of the investment equation. Being with, among and around (professional, accredited and sophisticated investors) is the pathway to becoming like them.

Investors can experience a new form of learning “validated learning,” not the conventional one, that takes place in a training institute. Textbooks based training can be integrated into daily investment conversations and real investment decision-making process.

Under the industry-wide platform business model, learning will be empowered by live 365-degree feedback and insights which will enhance the ecosystem’s intelligence and will allow all stakeholders to build deeper trust-based relationships.

The longevity growth can help investment banks to fill the gap identified in the above question “From where do investors come?” Such industry-wide platform will act as a vibrant growth engine within the investment banking industry.

Below is an illustrative example of how the longevity growth can help in discovering new demand (new investors’ base).

In many jurisdictions, the regulation on the eligibility criteria for investing via Private Placement Memorandum (“PPM”) mandates that only Accredited Investors can subscribe to such PPMs offering. This is a classic case of the preventive view of the Return on Regulation (“ROR”) concept introduced in part three.

Such preventive practice perfectly resonates with the fact that such a threshold is designed to protect the retail clients from taking excessive risks embedded in the alternative assets class. However, if we will allow the thriving view (as discussed in part three) of the ROR to shed some light, we might realize that the same set of regulatory requirements that are designed to protect retail clients are preventing them from their right to grow and prosper in the investment landscape.

A one size fits all ban on retail customers from entering the investment arena (under the protection justification) is not practical nor fair. Such practice (unintentionally) place an unnecessary limit on the growth potentials of an entire industry.

Let us see how the longevity growth concept can help the regulator and the whole industry to grow while preserving the merit of customers’ protection via design thinking instead of an outdated regulatory rule.

What about opening the investment gate to welcome retail customers?

Let us examine how the longevity growth can enable an unprecedented level of collaboration between the Investment Banks and the Retail Banks, which can support the regulators to relax their regulatory requirements on the eligibility threshold in investment (the birth of new investors’ base).

1) Eligible Retail Customers (“ERC”) will be classified by their respective Retail Banks. Based on their credit standing, saving, salary, and income increases.

2) Retail Banks will facilitate access to their ERC to have access to the platform with a mandatory 30 days view option only (i.e., ERC at this stage cannot engage in investment transaction).

3) Once on the platform, the ERC can have access to the investment simulation facility as well as observing the interactions on the platform between key players. They can enjoy mentorship and coaching relationships with third parties professionals as well as experienced investors. They can observe how Investment Banks operate. And can have access to the Regulator.

4) After the completion of the 30 days, the ERC will be considered as potential investors.

5) The Retail Banks will introduce the ERC as potential investors to the platform. And will start matching them with suitable investment opportunities (Subject to new regulatory criteria, see below example).

6) The Retail Bank will represent the ERC on the platform and will undertake the administrative part of the investment process.

7) The Retail Bank will introduce the ERC to the relevant Investment Bank and will represent the ERC in case of any complaint or issue with the Investment Bank.

8) Once the ERC gained enough experience and exposure to the investment world, they will be upgraded to Eligible New Investors. And will be able to transact on their own.

In summary, this is how the longevity growth can help the investment banking industry to realign its trajectory.

See you soon in part eight…

Special thanks to John Hagel for being the source of inspiration: the Longevity Growth was inspired by Hagel’s Leveraged Growth.