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Can Financial Services Companies Ever Be True Aggregators?

Some readers may be familiar with aggregation theory, an organisational theory of the internet authored by Ben Thompson at Stratechery, which attempts to explain why platforms exert market power in certain industry verticals, such as Netflix in streaming, Uber in ride hailing or Google in paid search. Aggregation theory ultimately points to monopoly; the belief is that one player will come to dominate each industry vertical in a two (or even three) sided marketplace where suppliers and customers develop a symbiotic relationship and each additional customer or suppler creates more utility for the next one. This symbiosis, in turn, enables the platform operator to reach the next marginal customer at no incremental cost.

Notably absent from the list of aggregator verticals is financial services. Our question for today is: Can financial companies be true internet aggregators and if not, why not? While we have not yet seen a true aggregation model emerge in financial services, anybody who has read Nassim Nicolas Taleb will know that visual confirmation of thousands white swans does not preclude the existence of a black swan. Maybe our black swan just hasn't appeared yet.

As of now, two interconnected factors appear to limit the potential for aggregation in financial services. These two factors are customer ownership and marginal costs, According to aggregation theory, an aggregator must own the customer, however a financial firm cannot do so without violating another rule; the prohibition against marginal costs in terms of COGS. Indeed, the heavy hand of financial regulation will always impose a marginal cost burden on the institution that owns the customer. This may take the form of fluctuating capital, liquidity and solvency requirements or simply the burden to AML/KYC each new customer. Inversely, infrastructure players benefit by avoiding these cost burdens but don’t own the customer relationship. Therefore, they cannot be aggregators either.

Or can they? As platforms increasingly become critical infrastructure for connected markets, we propose that the effect of financial regulation will be to push aggregation potential down one layer from customer ownership to the infrastructure level. Indeed, the operator of an infrastructure platform could use a regulated "proxy" to own the customer relationship in its behalf (and bear the associated regulatory burden) while it continues to control the platform that drives the growth of supply and demand for the regulated services. And, as with other verticals, once the platform has been built, it can serve an unlimited number of financial customers and suppliers without significant marginal costs.

There will be some use cases to follow about how we at Universal Platform can leverage "aggregation theory" to produce a new model of Fintech development for Europe. My UP colleagues, a team of experienced FinTech and banking professionals, are building a new banking institution and encourage anyone interested to learn more about our project to contact us via Linkedin or here at to discuss.