ALTUS CONSU LTI NG September 2018
ON LI N E PLATFOR M S
Platform profitability: Giving your platform wings A recent white paper from Altus Consulting has highlighted some common areas of operational inefficiency when it comes to platforms. Ben Hammond explores the theme of platform profitability and concludes that while things are improving, there is still room for improvement Six years ago Altus Consulting released a white paper, The Platform Machine: Tuning for Efficiency. In it we claimed that, in spite of ever increasing levels of assets under administration, all was not well in platform land. Revenues were rising across the board, but costs were outstripping them in, many cases significantly so. Fast forward to today and there have been a number of platforms which have moved into profit, some of them significantly so. As a result, we have re-evaluated the current platform industry and in this article I will highlight some of our main findings. The number of platforms has continued to grow in recent years and there have been some that have moved into profit, many of them significantly so. Recently a few of those star performers have even begun to openly discuss IPO plans; a reflection of the positive outlook for this corner of financial services.
However, is this case for all platforms? At Altus we recently updated our research into platform profitability, which revealed that the story is not uniformly rosy across the platform sector when you examine profits, costs and the numerous factors that sit behind them. Total AUA and revenue has risen, however revenue in bps has fallen Total AUA has grown by 230% since 2011 as shown in Fig 1; however, total revenue has increased by just 27%. The explanation is margin pressure: revenue in bps was already falling in 2011, and has continued to slide. It now stands at 21bps, adding yet more pressure to the players in an industry in which it is notoriously difficult to make money.
Figure 2 The platform industry is still struggling to make a profit Fig 2 shows us that almost half (48%) of firms from a ‘pure’ platform background are in profit. They have achieved this largely by being run by visionary founders backed up by teams of creative problem solvers. As these innovative firms have tried to scale, however, issues have arisen that jeopardise their profit levels. In contrast, group-owned platforms, with their traditional model of high
Figure 1
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