Today, financial technology (Fintech) is one of the fastest growing sectors in the industry and has revolutionised the world of finance. In the past, investing was “left” to the experts, this was due in part to the lack of visibility around charges, technical jargon and restricted access to financial information.
The millennial generation, those born in the last 20 years have adopted technology as their main means of communicating with the world and do not trust the traditional financial institutions. They are constantly searching for financial information using their mobile phone or tablet. These changes are the reasons that the Department of Research at the Instituto de Estudios Bursátiles (IEB) [Institute of Financial Studies] has produced a paper entitled the “Study of the Digital Bank in Spain”.
The digital transformation of financial advice will have a significant impact on the delivery of banking and financial services products and services, and redefine the customer experience. Two points of view should be considered.
The first aspect concerns habits. The spread of the Internet and mobile phones that support connections to the network have brought about a revolution in who is able to access information, what information can be accessed, and when. Many barriers have come down since this does not involve special applications; instead, a single URL will take us to the area of current interest.
Moreover, financial information has far more open-access sources, which has made it possible to expand and disseminate knowledge about finance, together with specific pathways that are much more readily accessible, and include propositions that are tailor-made to the investor’s requirements. In short, it’s no longer necessary to study 4 or 5 years in order to be an investor. What does this imply? That there are more potential clients thanks to the interest aroused in finance. In the current environment of low interest rates, and with a crisis that damaged the image of the traditional bank, clients are seeking advice from alternative sources rather then just their bank, wanting a level of personalisation and efficiency.
There is also more transparency within the industry with important financial information being made available, sophisticated financial tools readily accessible and the media always discussing issues that may affect people’s investments.
Today’s investor does not passively accept the investment strategy recommended by a financial advisor. Quite the opposite, they analyse the markets and form their own conclusions using the resources available, these resources include web applications and financial platforms. With all of this economic information accessible to the customer, the financial advisor’s job has become a lot harder, with them having to justify their recommendations, keep up to date with the markets and constantly having to improve their knowledge and service to justify their fees.
This is why the skill has become more open. The financial sector has to fight for clients who are increasingly inclined to be more self-directed, more independent. The availability of technological tools has fostered this engagement, while improving the sector’s efficiency and reducing its costs. Today more people are potential clients, because the investor is also interested in small portfolios. Smaller entry portfolios have meant that more people can invest using technology. Technology and the new habits it has engendered is not an obstacle, but rather an opportunity to expand and diversify the market through numerous options. Some clients are more autonomous than others, have more initiative than others. Technology enables the finance sector to adapt to people’s particular characteristics and habits, and to adjust better the price of the service provided.
According to TechRules’ managing director, Jaime Bolívar, “Fintech is constantly evolving, and we are closely monitoring the types of products and services that people want. Firms that fail to adopt this trend will struggle to be successful unless they can justify their existence by providing a highly specialised service. The future lies in combining technology with the advisor’s expertise to provide tailor-made services to a public that’s segmented not only by its investment potential but also by its knowledge and proactivity”. Although the integration of financial tools within the banks and family offices make the provision of financial advice easier, and more efficient, those seeking better returns will still require a more tailored approach.
There is little doubt that Fintech’s digital transformation creates new business opportunities rather then destroying them. Many are the soothsayers who predict the demise of financial advisors and call for a rebellion against Fintech platforms or robo-advisor phenomenon that recalls the battles of Luddite British workers who destroyed textile-making machines in order not to lose their livelihoods. Precisely.
The introduction of such new machinery opened up the way to create many new jobs, spawning new business models. Here we have a similar situation. While some Fintech companies may want to compete directly with the established financial institutions, it is our view that the majority of these companies are more looking to partner with or sell their services to these financial institutions. It’s not a fight between victors and vanquished: it’s cohabitation.
There are benefits for both parties working together, for the Fintech they gain access to customers, distribution, data, capital, experience, licences, a trusted brand and the ability to scale much more quickly. For the financial institution, this means getting access to new ideas, solutions, capability, knowledge and potential investment opportunities.
The introduction of these new tools will create many new products, services, distribution methods and business models. Our view of the future involves a hybrid advisory solution involving the delivery of personalised advice in a digital era and democratising advisory services, traditionally reserved for large financial institutions. Investing in digital innovation is critical to meet the increasingly demanding customer needs, these will include the needs of self-directed investors as well as those wanting to use robo-advisors, attracted by standard low-cost portfolios.
There will be financial advisors specialising in Fintech tools, providing a distinctive service for smaller customers. There will also be larger financial institutions partnering with and sourcing capability from Fintech companies to enable them to enhance their customers’ experience, to streamline their operations and to allow their customers to fulfil their financial needs.
We must embrace the Fintech revolution and welcome the different models under development. Some will be better than others, and this depends on how well suited they are to meeting their customer’s individual requirements. Everyone will identify the model that works best for them and target a specific market segment with those adapting successfully doing very well.
Sabine BROUN, TechRules Benelux Manager