Banking Rails: The Unsung Superpower of Finance
We've talked a lot about innovation in financial products. Don't look now, but there's big innovation happening in financial infrastructure too. And it looks to be a big opportunity.
Back in March, I posted a piece on the containerization of finance. In it, I discussed the different “wrappers” that GenTwo (and many others, of course) use to provide standardized containers for assets. These containers – AMCs, trackers, CLNs, and now tokens – represent some of the basic ingredients behind today’s most important innovations in securitization and structured products.
In that piece I promised a follow-up on the rails these products run on. Which makes sense: the power of containerization is not simply the container itself, but the way standard containers facilitate transport – reducing costs, increasing efficiency and expanding markets.
Today I’d like to fulfill that promise with some thoughts on the infrastructure part. The timing seems right, as things seem to be percolating here too. (It was a big theme at this year’s AssetRush for instance.)
Indeed, one thesis we’ve been developing here at GenTwo is that infrastructure may end up being the big play in finance going forward. More on that below.
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Friction Addiction
If AMCs, trackers, CLNs, and tokens are the containers of finance, then the global financial infrastructure is the vast network of ships, trains, trucks, and planes that move those containers across the world.
This system is vast and deeply interconnected, spanning everything from payment networks like SWIFT and SEPA, to central securities depositories such as Euroclear and DTCC, and the major exchanges and clearing houses that underpin global markets. Every day, trillions in value flow through these channels, linking banks, asset managers, custodians, and investors in nearly every country. It’s a sprawling, resilient web that not only enables the transfer and safekeeping of assets, but also ensures trust, transparency, and efficiency on a truly global scale.
It is also increasingly unfit for purpose.
Financial product innovation has exploded – we're securitizing everything from art collections to uranium, creating bespoke strategies for individual clients, bridging traditional and digital assets. But the infrastructure moving these products around is still built for a simpler world. Legacy systems designed for basic stocks and bonds are now being asked to handle complex, multi-asset, real-time strategies across dozens of jurisdictions.
The result is friction everywhere: private market investments that should settle in hours instead take weeks; alternative assets require manual processes when they should be automated; and cross-border transactions crawl through outdated networks.
The very innovations we've been celebrating – the containerization of assets, the democratization of investing – are bumping up against infrastructure that simply wasn't built for this level of complexity and speed.
Something has to give.
From Rails to Riches
I recently saw an internal memo that took a look at this in some detail. The gist of it was as follows:
Financial institutions are hitting a wall with their legacy systems – they need to modernize infrastructure or risk being left behind by more agile competitors. At the same time, regulatory pressures are forcing banks to find ways to grow revenue without loading up their balance sheets, making off-balance sheet solutions increasingly critical. Meanwhile, there's a massive opportunity in making previously "non-investible" assets accessible to mainstream investors, but this requires new infrastructure capable of handling complexity that didn't exist before.
The memo identified three key forces driving this transformation: institutions facing a "build versus buy" dilemma that's becoming a matter of survival; the imperative to optimize capital allocation in ways that don't strain balance sheets; and the push to expand the universe of what can be invested in.
Together, these pressures are creating what we see as a new category within financial market infrastructure – one focused on making financial engineering scalable and accessible rather than the exclusive domain of large institutions. We call it Financial Engineering as a Service (FEaaS).
Exactly how big the FEaaS opportunity is is still tbd. We are still developing these ideas and hope to get them out in an upcoming report.
But I like the story and I think it has legs. Infrastructure tends to be seen as dull as nails. But there’s no use building a better mouse trap if you can’t get it to where the mice are.
Stay tuned.
Tom