Taking the mass end-user perspective and working backwards from there reveals layers of challenge and opportunity for unlocking this emerging frontier of financial inclusion.
In the canon of the financial inclusion movement, availability and equality may be the broad strokes, but the practical measures of success are surely the usefulness and affordability of the financial services that we, as an industry, are able to put in the hands of the many.
The challenging edge of financial inclusion
One domain where the gap to potential still looms large is access to the investment markets, where the barriers to entry have been lowered with time, but mass participation remains an aspiration rather than an accomplished fact.
While the moving parts are many, and both geographic and regulatory nuances are also important, this blog will look at the situation (as product managers tend to!) from the perspective of the end-user.
1. The interaction cost problem
At GTN, we work with numerous B2C fintechs that have leaned into bringing the investment markets to a mass end-user audience by crafting embedded investing features that are genuinely intuitive and inviting.
And yet, certain frictions are inherent to the workings of investment markets. These run counter to our usefulness criterion, and require concerted planning and effort to abstract from the end-user.
The equities markets are a case-in-point for some less-than-happy user stories:
- I want to invest exactly one dollar into an equal-weighted basket of assets… but the market expects orders by quantity, and in the meantime, market prices are moving around.
- I expect immediate and intuitive feedback about the investment action I just made… when in reality the market is ten time zones removed from me, and not open until next Tuesday.
- I expect a singular view of my balances… but in reality, some portion of those is not available to me due to being blocked or not yet settled.
- I want my investments accumulating in the background without any action from me… but I am being told to take action because a dividend has been paid.
Of course, pain points seldom go unresolved one way or another.
The mutual funds space, which celebrated its centenary last year, is founded more or less on the outsourcing of interactions with investment markets to the domain experts, albeit at quite some cost to the end-user.
Meanwhile, cryptocurrencies are testament to new investment markets being shaped without legacy limitations: if traditional asset classes cannot be interacted with 24/7, emerging asset classes will gladly step up.
2. The wallets problem
Let us suppose the interaction cost problem is solved by abstraction: in practical terms, the collective heavy lift of armies of talented UX/UI designers and developers. While we would score better against the usefulness criterion, affordability will still be a point of friction.
Here is the mass end-user perspective again:
- I now want to invest just one cent into my basket of assets… but the market expects a minimum lot of one unit in each, collectively worth hundreds of dollars.
- I expect the general balance of my bank account or electronic wallet to be immediately available at any time to pay for my investments… but I am being told to make a prepaid deposit or remittance before I can invest.
- I expect everything to be in my local currency… but my investments are being sized in a foreign currency.
- I have minimal balances in my wallet between pay dates… so I’d better mark my calendar to action investments just after each pay date.
The wallets problem cuts to the core of why turning non-users into users is more often than not about delivering value innovation, as opposed to technology innovation in and of itself.
Where the operating model behind a given technology is subject to constraints, be it related to indivisibility or to money movements, the key to unlocking value may be found at this level. At GTN, we have seen radical changes at this level on the back of initiatives such as our global fractional engine.
3. The over-choice problem
Finally, for the sake of argument, let us wave away the interaction cost problem and wallets problem. What remains, and paradoxically gets in the way of our usefulness criterion, is the problem of over-choice.
While the paradox of choice is encountered across many consumer-facing domains, it is particularly acute in the context of the investment markets, where the figurative store shelf could contain thousands of investment choices.
Here is the mass end-user perspective, with the equities markets again the case-in-point:
- I want to invest in the artificial intelligence space… but am unsure whether to pick individual stocks, which individual stocks, or if there is a better way.
- I want to invest in an ETF that gives me exposure to physical gold… but am unsure which of the dozens of available ETFs is right for me.
- I want to invest in a fixed-income ETF that pays a yield higher than my bank deposits… but I cannot get a good sense of the yield.
- I want to invest in high-profile stocks such as Apple and Google… but when searching by name, there seem to be multiple variants of ‘Apple’ and no clear-cut matches for ‘Google.’
As with the related problem of interaction costs, these pain points have not gone unanswered.
The thematic ETFs space has risen to the challenge with a staggering pace of vehicles being launched, while the WealthTech community has been doing amazing things with curation and personalisation on top of infrastructure provided by GTN and others.
From challenges to opportunities
Let us turn our attention from problems and challenges to solutions and opportunities.
As part of GTN’s commitment to making the investment markets more inclusive for all, we recently launched our Microinvest API service, which is (in essence) a simplified set of building blocks for embedded investing features targeting mass end-users.
It has been said that the right problem statement brings one at least halfway to the solution. Interaction costs, wallets, and over-choice were top of mind for our team as we shaped the Microinvest API service, and in rounding off this blog post, we will share some examples.
A higher level of abstraction
We scoped our API endpoints to a higher level of abstraction. For example, requests for investments are taken by amount, with the same request path for investments involving individual assets and baskets of assets.
The end-user journeys we provide for are really as simple and low-touch as loading into a mutual fund. In other words, we very much had interaction costs in our crosshairs.
Fractionalisation as standard
We used GTN’s proprietary global fractional engine to fractionalise popular stocks and ETFs down to eight decimal points. Investment actions sized in cents are accepted without reservations or overheads. In the background, the service consolidates orders and executes in bulk to maintain economic feasibility.
By leaning into fractionalisation, we very much went after the indivisibility aspect of the wallets problem and support our B2C partners in delivering affordability for their end-users.
Notional funding in local currency
We made customer buying power a variable defined by an API call and provided for it to be kept in sync with an end-user’s general funding balance with a host platform. A prerequisite for this is that the service’s functional currency can be a local currency.
This notionalised approach enables our partners to abstract the money movement aspect of the wallets problem to whatever extent suits their UX objectives and risk budgets.
Curated product inventories
We brought inventory management concepts into the service by providing for both individual securities and baskets of securities (as well as the associated investment controls and fee structures) to be wrapped into self-contained units of inventory known as ‘product templates’.
The template-based approach enables our partners to easily build out unique, curated product inventories which deliver choice but not over-choice to their end-users.
Subscriptions, round-ups and more
On top of accepting general investments, sized in cents, the service natively handles recurring investment subscriptions, as well as accounting for other auto-investing features such as transaction round-ups or sweeps of idle wallet balances.
In making the service ready for various auto-investing affordances, we ensure compatibility with our partners’ initiatives to take interaction costs out of the equation.
What it takes: usefulness and affordability
At GTN, we are excited to be contributing to this emerging frontier of financial inclusion. While the journey towards mass participation in the investment markets is bound to have its turns and perhaps a few twists, we know that the usefulness and affordability we help our partners deliver to their end-users will remain our guiding principles.
If these dimensions also matter to you, let’s discuss how we can work together!