We live in a digital era which is revolutionising our lives at an accelerated pace. We are progressively dedicating more time to staying connected, as we are exposed to a global deluge of complex economic and financial information; which we are expected to interpret and make clear, canny financial decisions. All the while, the volatility reigns and stock markets continuously lull between boom and bust. There is no doubt many of us need better financial advice. The equation should be simple in a digital world:
one minus payments equals savings smart savings equals informed investing, borrowing, insuring
Yet, the banking relationship has been dominated for decades by the asymmetry of information which has allowed professional players to bury our personal needs under a layer of complexities, fees and conflicts of interest. Nowadays, in the aftermath of the global financial crisis, the industry reputation is largely broken, and while regulators attempt to mend the system, financial firms are hit by a perfect storm made of a cocktail of FINancial TECHnology innovation.
FinTech is global phenomenon, born at the intersection between financial firms and technology providers, attempting to leverage on digital technology and advanced analytics to revolutionise financial services and harness economies of scale by targeting long-tail consumers and inefficient businesses with cheaper services. They typically feature a high level of specialisation, hence very narrow and simple business propositions, to profit from a concerted attempt to unbundle financial services into leaner digital offers. The FinTech parterre changes very fast and is populated by new firms and ideas almost every quarter. By and large, they can be classified in digital lending, digital payments, big data analytics, blockchain architectures, Robo-Advisors, and residual models.
Social media and digital technology are affording the opportunity to leverage virtual networks among individuals, without the need for traditional intermediaries. Potential creditors can reach out “almost directly” to potential debtors, by pooling in small ticket investments to lending facilities specialised in personal lending or small corporate. Mobile and wearable are granting IT firms unprecedented power to disintermediate centuries-old banking centrality of cash repository and payment services, and help to foster financial inclusion in poor countries. As telecommunications and the world wide web have become fairly ubiquitous, we can nowadays visit smarter cities and pay-per-use the underground using a smartphone instead of holding physical travel cards, carrying a credit card or unloading spare change out of our pockets. In this domain, blockchain technology has the potential to be truly revolutionary. The internet has favoured the global acceptance of social media and granted innovators with a fertilised terrain to develop advanced analytics which identify, analyse, and target investors’ preferences, and track their digital interaction and peer-to-peer relationships. Big data analytics, behavioural analytics, and cognitive computing operate in this space. FinTechs are given the opportunity either to adopt these techniques as part of their operations or to create new business models that provide analytics-driven services, such as digital assessment of personal credit risk.
One of the main consequences of the GFC has been a tightening of international regulation to increase the cost of capital and foster investor protection (MiFID2), affecting the economic relationship between product factories (asset managers) and final advisors (retail and private banks). This has ignited the rise of Robo-Advisors, which use digital tools to attract private money across the continuum of the clientele, promoting low fees and tax harvesting, typically built on passive investments or portfolio algorithms that threaten asset and wealth managers. As a matter of fact, this has forced incumbents to launch Robo-Advisors solutions and play the new digital game of investment automation.
Robo-Advisors are truly game changers of personal finance and the main focus of “Fintech Innovation: from Robo-Advisors to Goal Based Investing and Gamification”, which spells out a vision for the future of personal banking in which clients’ needs take centre stage, gamification helps them learn how to make better investment decisions, and the industry thrives in a more symmetrical, transparent and risk-controlled landscape.
Can technology make our life easier and decision making more intuitive? Would technology help human advisors or de-humanise our social and professional being? Do we fully trust our advisors? How does a Robo-Advisor work?
“FinTech Innovation” answers these and more questions. What investors want is to access cost-effective added value services: simpler, more personalised and 100% trustworthy. What banks want is to regain customers’ confidence, increase revenues, reduce costs and comply with regulation. What regulators demand is transparency and fairness. What FinTech companies look for is growth by exploiting technology and user experiences to close the gap between investors’ needs and traditional services.