Signals investing platform

How to Build a Fractional Investment Platform in 2024

Every dollar can be a building block in your financial portfolio in 2023. Next year, fractional investment can reach a new level of convenience for investors. Companies like Arrived and mogul club are working on it. Find out how you can, too.

This article will help you set expectations and figure out the planning phase if you plan to launch a fractional investment platform to revolutionize the market. Proper preparation at the beginning can save tens of thousands for your company and dramatically reduce time-to-market.

Learn how to build a fractional investment platform, what challenges you may face, how to overcome them, and avoid overspending and wasting time.

Why is the fractional investment market growing fast?

As the investment company usually covers luxury tax and other associated costs, many investors consider fractional investment more profitable. In the best scenarios, one’s fractional investment can start paying off much sooner than, say, a whole luxurious mansion in Miami. But, of course, situations differ.

Instead of investing in one house, individuals can use a similar sum to own a portion of several properties, thus diversifying their investments while having usage rights and deeded ownership. In addition to potential rental income, one shares maintenance costs with other owners, lowering maintenance and upkeep efforts and expenses.

There’s a psychological aspect to it, too: it can feel much better and more secure to own a fraction of a material thing, something tangible, than buy some crypto or shares of a promising startup.

And let’s not forget about a large segment of beginner investors who can't afford to buy a $100K+ asset but can own 1% of the watch, car, apartment, etc. Increasingly, these are Gen Z and Millennials, but Generation X and Baby Boomers are on the radar, too. 

Of course, fractional investment has its cons. The biggest ones include the following:

  • A decreased possibility of getting a mortgage for buying just a fraction of the estate;
  • Less freedom as maintenance, redesign, selling, and a bunch of other decisions must be made collectively by all the house owners.
  • Those investing fractionally should be ready to visit their property locations, which may be costly to some.

Setting expectations & developing a masterpiece

If you’re thinking of building a robo-advisor platform, you might want to check out this guide.

Here, let’s dive deep into preparing for building your fractional investment paradise.

The results of the project heavily depend on a well-defined planning phase. Below, you’ll find a detailed checklist for setting expectations and ensuring the successful completion of the planning phase.

1. Determine technical vision, business objectives, and goals.

Clearly articulate the business objectives and goals of the fractional investment platform. Your team must also define the project's scope, including features, functionalities, and potential limitations.

For instance, the functionality of your platform needs to cover the following:

      - Define how asset fractions will be created;

      - Define ownership process;

      - Allow public participation according to the set legal regulations;

      - Define the investment rules.

To gather requirements, collaborate closely with stakeholders, including business leaders, marketing, legal, and compliance teams. 

Important: Hurrying into development without thinking through the business organization might result in a disaster. You’ll throw money into development while having nothing to fill the platform with. That’s why business organization is crucial. Ask yourself these questions: Where do you take assets from? How do you allocate them? To ensure that assets are in stock, for instance, make one stack for all the solutions, be it your platform or the white labels you offer.

2. Decide on the development pace.

Building everything everywhere all at once may lead you to the opposite side of the disaster scale. There, your company might curl up somewhere at the deep bottom of the industry ratings. To avoid that scenario, think carefully: what’s the core of your platform that you can show to the first users to gather feedback and eventually deliver just what users need, when they still need it? If you have an ambitious project, it’s worth considering building a Minimum Viable Product (MVP) first.

MVP

Deciding what you will include in your MVP and what you will add later is strategically important.

With a fractional investment platform, you might want to build functionality for investors first, then for agents, etc. To ensure you and your partners do not fall victim to fraud victims, add or integrate a Know Your Customer (KYC) solution to verify investors' identity. Then, investors must be able to pay through your platform and see the result. So, add payment integrations and investor profiles where they can keep track of their moves and activities on your platform. 

Of course, you may decide the platform's MVP needs more features. However, These four things are necessary for a secure platform that keeps investors happy.

[LiN]-1

Possible services interaction scheme for a fractional investment platform built on microservices.

Extended version

Add functionality for agents, borrowers, or home sellers if you intend to do so. Automating the processes built for these stakeholders and adding KYC for them, too, can be a reasonable option (at this stage, you can improve KYC, making the process more complex yet easy to complete). Automatic scoring can fit in nicely and serve investors, too. It may feature the borrower's business plan, current stage, goals, etc.

Another essential feature is live support for investors, borrowers, and other users. While you can engage one of the developers to provide basic support functionality at the MVP stage, an extended version usually provides a better opportunity to set full-blown support on your platform.

Also, think of BI. For instance, it can provide reports with the number of borrowers, application status, etc.  

3. Assess technology requirements.

As a CTO, you must evaluate and select a technology stack that aligns with the project's requirements and long-term objectives. Ensure the chosen technologies comply with security and regulatory standards.

As for technology, often, CTOs rely on the one they and the team know inside out. However, such an approach can lead to extra work and overspending in the development process. There are several things to consider when choosing a tech stack for your fractional investment platform, like the ones below.

- Budget. For instance, PHP is quite affordable, while Java can be pretty expensive. Java + .Net is an option for companies that have plenty to spend. 

- Development speed. PHP allows you to develop fast and enter the market early, while with Java, the process can take much more time. 

If you're a startup looking to build a stable and resilient backend (BE) with a complex frontend (FE), you might try Java coupled with Vue.js. Vue.js is one of the simplest frameworks to boost FE development, and Java helps achieve stability.

- Load. That's where Java bursts first. Large enterprises may choose Java because, as I said, it's one of the best options for stability with high loads or large amounts of data to process, like in ETL (Extract, Transform, Load) systems. Compared to PHP, Java performs better in this respect.

Also, think of real-time monitoring tools to track your platform's performance. You might also want to add analytic tools for monitoring user behavior and system performance.

4. Establish development methodology and build a team.

Choose an agile development methodology that suits the project's dynamic nature. Agile practices such as scrum or kanban emphasize collaboration and adaptability in your cross-functional team.

As for the team, hire professionals with expertise in relevant areas (software development, UX/UI design, QA, and DevOps), clearly define roles and responsibilities within the team, and foster a collaborative culture.

If the system you build requires creating several separate services, you may need a development team for each service. Each team may have a unique structure. INSART can help you define precisely what you need and provide team members who will fill the required roles in each team. 

For example, your system will have an AI module that analyzes data gathered in the database and a client panel that collects the data and through which the client may find the results of the data processing. Here’s what the respective teams can look like:

[LiN]-2

5. Develop a comprehensive technical architecture.

At this point, you’ll need to design a scalable and modular technical architecture for the platform. Scalability options and integration points should be well thought through.

A dozen software architecture patterns exist, but layered and microservices architecture are the most common ones. 

Layered architecture entices with its simplicity and being easy to learn, implement, and test. Each layer has its own function, is separated from other layers, and can be tested individually, so it has reduced dependency. If you meet with cost overheads, they are comparatively low for layered architecture.

Microservices architecture is praised for its scalability, and it's well deserved. Its fault isolation and resilience are another advantage. Coupled with continuous integration/continuous delivery (CI/CD), high development speed and convenience, these benefits let microservices enjoy much popularity in FinTech. By the way, here, our Tech Lead and I explore the art of mastering distributed transactions in microservices. 

6. Plan for Continuous Integration/Continuous Deployment (CI/CD).

CI/CD pipelines will automate your investment platform’s development, testing, and deployment processes. Integrate automated testing to ensure the quality of each release.

If you have picked microservices architecture, check out this article on automating CI/CD pipelines for connected microservices.

7. Design for scalability and performance.

One of the critical aspects of building an efficient infrastructure is making it scalable. In the diagram for the example case below, AWS Elastic Beanstalk was used to scale infrastructure when any of its services experienced additional load. 

Node.js server supports the website to ensure maximum flexibility and provide seamless access to basic information. If the customer wants to explore the details of a particular project, a request runs from the front end to the web application Java back end, which sends a request to the database (DB) to get the list of the current projects. The response goes from DB to the web app's back end and through the front end to the user.

You can spot the admin application and its back end to the left from the web front end. The separate back end for admins covers essential functions, like adding or deleting a project, changing its details, making website changes, and so on. 

To the right is JobDispatcher, busy with the web application's background tasks. The tasks can include sending emails to users or completing KYC tasks. Admin uses the front end to create this task, and JobDspatcher completes it at the indicated time. 

Notification application Java back end nodes are responsible for payments. Since these are investment payments, not grocery shop ones, they take time to process and complete. That’s why you can see a separate service, which can be created specifically to interact with the payment solution (Mangopay, in this case, but it can be Stripe or any other payment processor that fits the regulation of your country of operation). For instance, we create a request for Mangopay to process a transaction. Mangopay sends a callback when ready, and the results are added to DB.

DevOps Superadmin provides support from Windows and Linux staging machines. Virtual private cloud keeps the whole structure secure and impenetrable.

By the way, diagrams like the one below should be a part of your documentation. Make sure that you define documentation standards for the technical team. Based on the standards, the team must produce comprehensive documentation covering architecture, code, and deployment processes.

[LiN]-3

8. Implement change management processes.

Not everything will go according to your plan. Establish a robust change management process for handling modifications to the technical plan and ensure changes are documented, reviewed, and aligned with project goals.

By meticulously following this planning phase, you'll lay a solid foundation for successfully developing the fractional investment platform, setting clear expectations, and aligning the team toward a common goal.

Risk considerations

Security risks

You’ll need to collaborate with legal and compliance teams to identify and implement regulatory requirements. But overall, you might want to protect your fractional investing platform from the risks described below.

- Cloud or server misconfiguration risk. Chances are, you will use third-party data centers for cloud storage. If misconfigured by the vendor, sensitive client data could be exposed. Managing their servers, you should invest in skilled IT professionals to avoid shortcuts and potential security lapses.

- Spear phishing risk. Spear phishing, a targeted email scam, poses a significant threat, with over 90% of data breaches involving this method. Cybercriminals exploit LinkedIn and other sources for personal details, using sophisticated techniques to bypass antivirus software and deploy malware, leading to potential data compromise. Both your clients and team are in danger of spear phishing attacks.

- Client-side risks. Clients using investment apps face increased cyber threats, including phishing attacks via SMS, emails, and cold calling. Hackers aim to obtain sensitive information such as app passwords and credit card details. Two-factor authentication is crucial, but cybercriminals exploit this by sending malicious messages, emphasizing the need for vigilance.

To mitigate these risks, educate platform users and staff on secure social media practices and conduct regular cybersecurity training. Tech-wise, employ robust email filtering software, implement two-factor authentication with strong alphanumeric passwords, and stay vigilant for red flags and suspicious withdrawals, adhering to anti-money laundering laws. 

[LiN] (3)

Application layers example in a fractional investment platform built on microservices.

Business risks

So you launched a platform with fifty gorgeous Miami condos, but it didn’t pay back. Why so?

One reason may be that you haven’t considered or analyzed possible risks. Buying so much property in one location instead of offering less in various cities, even states might have been a mistake.

Discussing possible risks and challenges can help prevent less evident risks, for instance, in the investment process. 

When you have the investments allocated on your platform, it’s easy to get issues when running transactions. A great way to fix this is to create a token to tie a transaction like Securitize.io did. Using this token, you can trace any transaction and keep track of the number and the amount of transactions of each user. This also helps prevent market oversaturation in the platform context and internal inflation. The latter may happen when a highly desired item is added to your platform, and everyone’s rushing for a fraction of it, which can increase the prices on other positions on your platform. 

Before you embark on the journey of creating your fractional investment platform, remember: organization is the cornerstone of success. Develop a robust business strategy, align your goals, and lay the groundwork for a seamless development process. 

What else?

As you navigate this path, consider partnering with experts who have helped develop leading investment platforms, including ones for fractional investment. At INSART, we can guide you through the road mapping process and transform your vision into reality. Contact me to get feedback on your case. 

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