Everybody Wants A Platform

Welcome to Global Custody Pro, I’m Brennan McDonald. I write about the global custody industry after 12+ years in financial services, most recently working for a global custodian. You can reply to this email with any feedback you have, I’d love to hear from you - you can also follow us on Linkedin.

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Everybody Wants A Platform

In banking, a "platform" is a digital marketplace where financial services come together, letting clients access multiple products in one place. A retail bank wants a customer to have a deposit account, a debit card, a credit card, and a mortgage. For custody banking, this platform approach means offering a complete set of services that goes far beyond just keeping assets safe, all designed to attract and maintain more Assets Under Custody/Administration (AUC/A).

When BNY CEO Robin Vince discussed platforms on last week’s BNY Q1 2025 earnings call and described the firm as a platforms company, he is sharing an increasingly common strategy for custody banks. While custodians build these platforms to gather assets, clients see things differently. For them, the top priority is always the absolute safety and security of their assets. Trust isn't just a feature but the foundation everything else stands on.

The recent record volumes at DTCC's Fixed Income Clearing Corporation (over $11 trillion in U.S. Treasury transactions on April 9) shows the enormous scale of financial market operations and why safety matters so much. Sitting behind many of these trades will be an underlying client of a global custodian.

Beyond safety, clients judge these platforms on how well they support investment strategies across different markets and asset classes both public, and increasingly private. The real question for institutional investors isn't simply "What does this platform offer?" but "Does this platform help or hurt my goals?"

A valuable custody platform works as essential infrastructure, delivering the tools, access, and capabilities that help clients execute their investment strategy effectively while maintaining the highest standards of asset protection and operational excellence.

The real kicker, as I’ve written about previously, is that more scale is the only way to earn a commercial return on the multi-billion dollar investment in a platform. People, processes and technology all combine to deliver a custody platform that can support clients in 100+ markets and multiple currencies without fail every day of the year. It’s essential to constantly grow net new assets and develop new revenue streams.

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The Platform Challenge

Core custody services like safekeeping, clearing, and settlement have become commoditized, with competition often coming down to price. This pushes banks to differentiate through value-added services such as advanced analytics and customized reporting.

The industry benefits from client "stickiness" - large institutions face significant costs and disruption when switching providers, creating natural inertia that helps incumbents retain business despite fierce competition.

From the client perspective, operational excellence isn't a differentiator but a basic requirement. For institutional investors, accuracy in settlement and corporate actions is simply expected. Any failure in these basics undermines the value of enhanced offerings, no matter how innovative. Custody relationships are built on trust in fundamentals before anything else.

Clients carefully evaluate the actual benefits of additional services relative to their cost. They don't just ask whether an analytics tool exists, but whether it delivers useful insights worth the price.

The human element remains crucial - responsive service and effective problem-solving often matter more than small price differences. Superior service quality can even overcome the "stickiness" factor when client experiences consistently disappoint, making it a key advantage in this commoditized space.

The Innovation Frontier

Innovation is happening where traditional custody meets modern needs - streamlining the path from trade execution to settlement. These improvements address real client needs for better data access, clean and complete SWIFT messaging, user-friendly client portal interfaces, and APIs that work smoothly with their systems. By making clients' daily workflows easier, custodians create value beyond just competing on price.

Serving clients of different sizes profitably has forced custodians to rethink their approach. Instead of one-size-fits-all service, some providers now develop support tailored to each client's unique complexity, not just their revenue potential. This creates opportunities in hedge fund services and prime brokerage, where smaller clients overlooked by top custodians need cost-effective solutions.

Clients with diverse holdings or specific regulatory requirements highly value expert support customized to their situation. This expertise-based approach helps custodians build deeper relationships across their client base, turning potentially unprofitable accounts into sustainable ones.

Some custodians now succeed by focusing on specific client segments rather than trying to serve everyone. Specialized strategies in areas like digital asset custody or private equity administration allow these operators to meet evolving client demands with targeted expertise.

This focused approach lets custodians develop distinctive capabilities that command higher prices while building natural client communities with shared interests - potentially a more sustainable strategy than competing solely on scale in increasingly commoditized core services.

There is always a drive for higher revenue from FX and securities lending yet more technology-based platform solutions will become an increasingly important revenue stream for the majors over time - highlighting why everybody wants a platform.

Key Takeaways

• While global custodians expand into multi-service platforms, institutional investors still prioritize asset safety above all else given regulator eyes on risks

• As core services (settlement, safekeeping) become commoditized, banks differentiate through advanced analytics, API integrations, and responsive client service

• Innovation focuses on streamlining trade-to-settlement workflows and developing specialized offerings for niche segments

• Custodians can now tailor support based on client complexity rather than just size, creating sustainable relationships through targeted expertise in areas like digital assets and private equity

What’s next?

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