One of the driving forces of innovation is industry convergence which is all about establishing relations that have not been possible before. This is enabled by the ever-developing new technologies such as cloud engineering, microservices architecture and others. In our latest Ask Me AnyFin conversation we are joined by Paul Thomas Walsh, COO at Elinvar, a WealthTech Platform as a Service, which uses technology to connect various FinTech providers on one platform, making it possible to create new exciting partnerships and business models.
WealthTech expert says: “Ask Me AnyFin.” and is not afraid to answer.
In his role as COO, Paul is responsible for day-to-day operations and risk management. Before joining Elinvar he spent over twelve years at Morgan Stanley based in London, Hong Kong and New York. His initial focus was Operations, before moving into Fixed Income Sales and Trading, where he focused on regulatory change, Operational Risk and ultimately on electronic trading as Head of Fixed Income Electronic Trading Risk Management for the Americas. Prior to this he was in the Financial Services practice at Accenture. He holds an MA from the University of Birmingham in International Political Economy.
Watch the conversation with Paul or read the transcript below.
Digitisation, democratisation and individualisation
Małgorzata Łabanowska: Welcome to the Ask Me AnyFin session. Our guest today is Paul Thomas Walsh, Chief Operating Officer at Elinvar, a WealthTech Platform as a Service offering digital solutions for asset and wealth managers. Hello, Paul. How are you?
Paul Thomas Walsh: I’m good. Thank you very much for inviting me to talk today. It’s great to be here.
Małgorzata Łabanowska: I’d like us to start from a general question about the sector itself. Can you tell us a bit about WealthTech? What have been the biggest advancements of WealthTech so far?
Paul Thomas Walsh: Maybe, just to start with a bit of context of the last year and a half… The world has gone through a very interesting phase. There was a McKinsey report published the summer of this year that did point to the fact that through 2020, there was still growth, about a 5 percent growth in Western Europe. Even through all of the challenges, it is a €25 trillion business. I think that’s a good bit of context to the overall wealth management market.
In WealthTech, generally, the digital ecosystem continues to be incredibly important, where participants can focus on their core competencies, but also connect with others in that ecosystem to grow their business, to reach new markets and to reach new clients.
Certainly, across the European Union, there is digitisation via democratisation. What does that mean? It means more people having access to financial products, which is absolutely essential. This is an area that is of interest to the European FinTech Association. Elinvar is also one of the founding members of the European FinTech Association.
Closely linked to democratisation is also individualisation. We’re all used to using our phones with apps and customising them in a way that suits us. All wealth managers or wealth management tech providers are aware that individualisation is very important. It’s not just a certain standard and everyone gets the same. People are now used to being able to tailor and adjust and providers need to be able to tailor and adjust their offerings to the underlying investor. Those things are happening very naturally and organically together, I would say.
At the centre of the ecosystem
Małgorzata Łabanowska: Thank you. Very interesting. I’m guessing this is where Elinvar comes in? Can you tell us a bit more about Elinvar’s offering and who it is addressed to?
Paul Thomas Walsh: Sure. What Elinvar, as a Platform as a Service, really tries to do is to be at the heart of that ecosystem to help connect providers and receivers of services within that ecosystem. That’s very important.
What we have developed and continue to develop is a B2B2C platform, whereby we don’t just provide services to our partners: financial services, banks, private banks and wealth managers, but we also provide and want to connect other providers in the market, such as AML or KYC and, also, custodian banks, market data, reference data providers. Our goal is to provide a platform that connects those partners within the ecosystem.
And we do that not just in one area, but we try and have a full value chain through what we call our Service Packages. We don’t just look at, let’s say, portfolio management, but we try and look at the end-to-end value chain. We look at online and on-site acquisition, we look at the full onboarding process. I’ve already mentioned AML and KYC.
We do portfolio management, but then also reporting, invoicing, metrics, providing a front-end, providing an app and, really, offering a full value chain so that those different participants in the market can really see the Platform as a Service as being able to give them what they need in a scalable way. That’s really important to us together with being able to do that all with our BaFin license, which we take incredibly seriously. That’s what really differentiates us.
Using innovation to create competitive value
Małgorzata Łabanowska: Anything else in the context of your competitors that you could elaborate on?
Paul Thomas Walsh: We’re really focused on the B2B market, and for us, that’s really the core area. What we try and do for our partners is to provide not just services that work for them, but in the case of, let’s say, Donner & Reuschel, we provide a platform and scaling for them so that they can, and they have, moved the existing book of business onto the platform. When we talk about scaling and configuration, it means that we don’t just provide a single offering, we provide an offering that can help our partners scale their business as well.
One of the core differentiating factors other than the end-to-end services we offer, is the ability to reduce costs generated by the legacy technology, which is something that our partners want to focus on.
That’s really essential because one of the core differentiating factors other than the end-to-end services we offer, is this ability to reduce costs generated by the legacy technology, which is something that our partners want to focus on. That’s a big thing that, certainly, in wealth management is a key consideration. If we can provide, through our Platform as a Service, the ability for our partners to not only use our platform to migrate the existing book of business onto the platform, but do it in a way that helps them reduce their technology costs, then, of course, that’s a really powerful thing for us.
It’s something that we really want to continue with because, again, we’re offering that full value chain and through the customisation and configuration, it gives them the ability to tailor the view or use the roles and entitlements within the platform to help them manage their underlying B clients as well. So it always becomes a triple B2C model and that scaling is very powerful.
Małgorzata Łabanowska: Very interesting. Thank you.
Connecting with three groups of clients
Łukasz Korol: Before we talk about individualisation, I want to go a little bit deeper and ask you about the type of customers that you are targeting as a business. Are you more focussed on asset management companies or, maybe, you aim at technical solution providers that will use your platform to deliver some solution to wealth and asset management companies?
Paul Thomas Walsh: Sure. Let’s break into three broad areas. The first would be financial services providers such as private banks, discretionary portfolio managers and large portfolio managers that have an existing client base and are looking to digitise their business. That’s one major group.
The next group would be insurance companies. We know that sometimes with insurance products, there can be a financial investment aspect to that, as well. That’s something that enables those insurance partners to be able to use the platform as well.
The third group, which we’re very excited about, is this continued growth of what we would call our provider side: custodian banks, KYC, AML providers, market data, reference data. By connecting those to our platform via APIs, we don’t just receive the services that they offer, ie, market data or ESG. Their presence is an actual benefit to our existing partners too.
You asked about the type of partner we work with. It’s really someone that can benefit from having a custodian bank connection via our platform, because, again, we don’t just offer a visual display of the portfolio but we also enable portfolio management. Hence, the adviser or the portfolio manager can use the platform to connect to a few other custodian banks and use the market data and reference data that’s coming in.
It gives them not just more connectivity, but it gives them more scale in terms of what they’re doing because that custodian bank may have existing partners as well. That’s why this platform as a service, connecting the parts of the ecosystem is really important for us.
Where individualisation and scalability meet
Łukasz Korol: Thanks. That’s very clear. Let’s talk about the individualisation. You’ve mentioned this already as an important aspect of what you are trying to achieve and the value you want to deliver to your clients or partners. How is this possible to achieve this and also assure the proper level of scalability? Is there anything special in your approach?
Paul Thomas Walsh: Let me answer that with a slightly different question first. In terms of our technology offering, we have this concept of native cloud-based activity. We’re present on the cloud and it’s all stored within the European Union, which helps from our passporting perspective and secure data standards.
That is combined with our microservice architecture, where we can add builds in an agile way. It means that we can deploy features and functionalities in a way that is scalable because our partners receive the deployments that we make.
Because of the microservice architecture and the database which is attached to it, we are able to make releases and have our Client Success Desk talk to our clients about the features that we are deploying and they don’t need to do anything. Okay, they might need to configure a new value that’s added to a certain existing configuration. But through this distributed model or using microservice, it means that the platform is then just updated for them.
Because of the microservice architecture and the database which is attached to it, we are able to make releases and have our Client Success Desk talk to our clients about the features that we are deploying and they don’t need to do anything.
We try to be consistent in how we release features. We’re releasing features to the platform, and then we work with the partners based on the Service Packages they have to configure those. And that’s another differentiating quality for our business because it creates scalability in what we’re doing. We’re connecting these partners, but also when we provide new features and services on the platform, if it’s within a Service Package that is applicable to them, it’s available to them with configuration.
So that’s what we’re trying to do. We’re trying to make the maximum efficiency in how we release, and deploy, and support the platform for the largest number of partners on the platform who are using our platform truly as a service.
PaaS most desirable technologies
Łukasz Korol: Great. Thanks for this. I would like to ask about the technology side of it. Are there any specific technologies that you use and advocate in your platform?
Paul Thomas Walsh: Yeah. I’ve mentioned cloud-engineering and that’s, for sure, going to be something that grows as a standard technology. That’s a key way for the reduction of costs, attributed to legacy technology costs and maintaining enormous server rooms. I’m old enough to remember all of those as well. Cloud-based architecture which is secure and in compliance with important data and protection rules within the European Union is very important. That is something I think that is useful for people to know in terms of the ecosystem, but it’s also important for our license.
Also, the microservice architecture, which is scalable, secure and gives our developers truly the chance to move towards the agile. We’re creating new features and functionalities and releasing them in a truly agile way following a “build, test, release” pattern. It’s continually strengthening the platform. We rely on various diagnostic tools and other technologies to make sure our development teams create the most cutting-edge technology. We want to be in line with the market and lead where possible in terms of the technologies that we offer.
Standards of cloud engineering
Łukasz Korol: I have a side question to this if I may. Do you use one specific cloud provider for your product or, maybe, you have a strategy to be compatible with a few of them? If you stick only to one, the question is to which one?
Paul Thomas Walsh: I probably won’t answer which one, but we do have an established cloud provider that we use. I would answer the question slightly differently. I would look at what is the regulatory expectation around cloud services, going forward. Because cloud services are absolutely the future from the perspective of cost, scaling and based on a similar model to what you see in the US and in Asia.
Regardless of which provider you have, you have to focus on security: the standards of penetration testing, monitoring those services and having a very clear idea of the way you can scale, but also just being aware of the challenges and the regulatory requirements around that.
In terms of having a provider, the priority is to make sure that they are the right provider and that they’re compliant. When our partners are talking to us, of course, they have questions about cloud services. How are they managed? How do you check? How do you validate? That’s an important part of our operations and we spend a lot of time talking about that.
Łukasz Korol: I imagine that when you start talking to your potential new clients there could be some kind of pressure, from time to time, to use this cloud provider or another. If you stick to one, this might create a kind of a challenge during the onboarding process to convince the company to actually use your solution on this specific cloud provider. Have you ever experienced such pressure or is it irrelevant from your perspective as a business?
Paul Thomas Walsh: I’m certainly not involved in as many client discussions as others are, but I would say the more important factor is the specific criteria. When a partner is talking to us and, let’s say, it is a partner that has very legacy IT and they’re used to having a server room and all the data is stored locally. Obviously, data privacy rules, especially, in Germany, are incredibly important as well.
The question isn’t so much if it is provider X or provider Y but it’s more about making sure that the following controls are in place. How do you ensure safety? The job for us, when choosing that particular provider, is to make sure that we have enough transparency in terms of cost, performance, notification alerts, security and communication.
Those are, really, the questions to be answered because a partner who is used to having legacy IT, might not be that familiar with cloud-based technology. In such a situation, it’s less provider A or provider B because they may not have experience of those different providers, anyway. It’s more what that cloud provider does to make sure that my data is safe and how I am notified of any issues? Those are more of the conversations we partake in.
These are valid and important questions. They relate to how wealth management is changing. This is one of the areas that financial services, generally, will be changing in terms of cloud-based architecture and less solid, heavy, server-driven data. Because if we think about passporting across the European Union, if we think about cross-border activity… What the European Union is trying to do will be really, really important.
There will be more regulation, I’m sure, looking at cloud services and cloud service providers. Your concept of A or B provider might be an area that we see more of. It’s necessary to apply more scrutiny and make comparisons, or, maybe, even have two providers.
Operational efficiency and value proposition
Łukasz Korol: We would like to talk with you a little bit about the future of wealth management and WealthTech as a part of it. Your company is shaping this future because of the very modern Platform as a Service business model. Such a technological solution seems to bring a lot of advantages in the space of operational efficiency. At the same time, it offers development in the field of the product and value proposition.
Having in mind those two areas of potential advancements: the operational efficiency and the value proposition, what would you see as the potential future?
Paul Thomas Walsh: Sure. Let me focus on the operational efficiency, first. It’s probably going to be more of the same: more cloud-based, more microservice architecture, more connecting the different providers within this ecosystem and the partnerships there. Because what a partner wants to be able to do is to bring their core competencies and make maximum use of them.
That’s what they want to do. They want to have their products and their services available to the largest number of people, using the most available sources of data in the most efficient way. That’s good. Moving away from legacy technology to cloud-based and to microservices-based is definitely going to happen.
Continuing to connect people in the ecosystem, that’s definitely going to happen as well, because it’s going to create more accessibility. Certainly within the EU there shouldn’t be any barriers or there should be fewer barriers to people entering the market and providing new services.
Additionally, what I would be happy to see is more input from smaller providers, including ESG ones. If you have a really solid, strong ESG provider, that provider could find a lot of connection points within our ecosystem that would allow them to make maximum use of their core competency. Using our platform, they have a connection to multiple users within that ecosystem. This many-to-many linkage will be the future.
In terms of the product offering, ESG is going to play a much bigger part. There will be the sustainability of what is being worked on and also the individualisation.
There are more and more people becoming financially aware and they start investing in topics that really matter to them, including me. For instance, the environment. I’ve been following what’s happening at COP26 in Glasgow very closely. It’s really important for me personally that by 2030 there’s a commitment to end deforestation across 80 percent of the forested nations. That’s something that is relevant to many people.
Products in the wealth management space will be looking at benchmarks like that or other ESG targets. There will be questions such as: “How do we track our investments towards these goals? How do we make sure that our products are aligned with the global ESG standards?”
Wealth management and financial services, generally, are going to lead the way in making sustainability absolutely essential within financial services. Within the economy, financial services have the responsibility to make sure that sustainability is part of what they’re doing, either in terms of how they operate, but also the services that they provide and the products that they offer.
They will be obliged to make sure that their strategy is aligned to a person’s economic situation, but also their ESG expectations because you may have an investor who wants to use their money to help economies align with the goal of reducing deforestation by 2030. Those sort of things. It’s going to be financial services playing a really strong part in the economy, generally. You’ll see more and more individualisation being at the heart of products that are out there, and certainly, ESG and sustainability will be at the core of that.
The need for transparency
Łukasz Korol: Great. Thanks for this. In my opinion, there is one more goal that technology should help to meet which is greater transparency of what is happening behind the scenes. This, somehow, connects to what you said about your motivation or your goals as an individual investor or a group of investors.
Paul Thomas Walsh: I agree because if you think about sustainability goals or ESG goals, they have to be measured. There is an increase in social conscience and greater interest in how things are being done, not just the end result. You’re right. People will start to say, “Please make that more transparent to me. I want to see how…” Not just, “Are the investments performing?” but, “How are we doing that?”
People are going to expect using data more and making that data available across ESG. It’s not just the economic return that people are interested in, it’s the methodology and the practices of the company. Shareholders are for sure asking for more transparency around how the board is operating, “Show me the split of how many males, females. What’s your gender diversity? What’s your ethnic diversity?” That’s really important and it should be.
Creating “social awareness index”
Łukasz Korol: Speaking of additional values that people want to get from investments, there is a challenge of translating those values into the metrics that can actually be used in the investment world. That’s a really interesting area.
Paul Thomas Walsh: That is challenging because, let’s say, if you have a strategy benchmark of how that strategy or portfolio is performing, you can compare that performance versus the benchmark because you have data points on, let’s say, carbon emissions. There’s a huge amount of carbon emission derivatives, products being traded. There’s a lot of data there.
In terms of social awareness, or sustainability, or gender diversity, there isn’t as much data there. It’s harder to get specific data points and to do that in a really scalable way, in a way that you can almost make a composite of that, you can make an index of that. I’m sure people far smarter than me will figure out a way to do that, but I think that’s something that people are going to be looking for. It’s almost like a social awareness index.
These are definitely going to be data points and data requirements that I think people have more and more. Because, yes, it’s not just the end result of the percentage, it’s, “Show me how we’re doing this, how we’re performing along the way.”
Łukasz Korol: Great. Thanks for those insights. Very interesting.
Paul Thomas Walsh: No problem.