FinTech is the new buzzword in London, and for good reason – we’re beginning to see how technology will be leveraged in financial services. FinTech is already showing us how to improve financial products and the user experience, but it’s also creating a level playing field between retail investors and the rich institutions. So far, the investment management domain (InvesTech) has struggled to move forward in line with other areas like payments, e-commerce, or Bitcoin.
It’s changing the mindset
The financial services sector has been significantly improved by technology. But the big legacy banks and brokers don’t think about the consumers enough. The focus has always been to siphon as much money as possible away from clients. This mindset has been so persistent because the kind of people who are looking for big bonuses and ballooning salaries are attracted to working in those kinds of institutions.
Think about that model and think about the new tech companies that are worth billions like Facebook, Uber, Linkedin, AirBnB and the like. These companies, while they’ve all gone on to be worth incredible amounts, didn’t start out that way. They all wanted to solve a problem, impact lives, and be an agent of change. The money that all of those companies have accrued over time is generally from happy customers who chose to use those services.
Now people with the same ideas about financial services are bursting on to the landscape, and not just to build billion dollar businesses. These are people and companies entering the space to create better systems, and ultimately making the whole financial world easier and more intuitive for consumers.
Collaboration over greed to control it all
Financial services has been about building these goliath organisations that are ‘too big to fail’, that control markets, and cream clients. In the old world, the bigger the fish the more it ate. The same ideas still linger around today, so banks and other institutions haven’t changed much.
FinTech companies differ because they are already willing to partner and leverage one another’s strengths, rather than going it alone with a divide and conquer attitude. We’re seeing this with APIs (machine readable code that allows for easy integration), and this will only get better when banks will be forced to open their APIs because of PSD2 regulation.
Retail traders and investors are no longer a ‘lost cause’
Whenever I find myself talking to supposedly smart people about my FinTech start-up CityFALCON, they tell me I’m wasting my time trying to help retail traders and investors. Over the last few years though, we’ve seen several other start-ups trying to help out the ‘lost cause’ clientele as well. I’m not wasting my time. After being active in the FinTech space for the past two years, and based on some confidential conversations with a few other start-ups in the space, I know the future is exciting. There will be a revolution in trading and investing in the stock market, and indeed in other markets.
We should be thankful for Millennials
For us old timers, floppy disks, mobile phones the size of cinder blocks, and patchy kbps connections are recent memories, and we were happy and satisfied with the improvement that technology brought. But it’s not the same for people born in the 90s and 2000s. They’ve grown up with the Internet and smartphones, so they expect a base level of technology in their daily life. Already Millennials are more receptive to FinTech, and as the next generation comes of age, using a traditional bank in its current technophobic state will seem as bizarre as writing with a quill, riding a horse to work, or using a dial up connection.
Here are some of the innovations to look forward to:
(Disclosure: My FinTech start-up, CityFALCON and its stakeholders may have business relationships with some of the companies listed in the article, and may even receive affiliate revenue in some cases.)
Portfolio building and management – We’re entering a World with greater and greater levels of automation. This will make people’s lives easier in innumerable ways, and soon we will feel that force by way of automated advisors. An advisor that can take in thousands of metrics and data points to assess a user’s risk profile for a low cost, and doesn’t cost nearly as much, because robots don’t eat. Some of the companies to watch for in the UK are Swanest, MyMoneyFarm, Wealth Horizon, and of course NutMeg. Other players in the EU are Vaamo, Ginmon, Cashboard, Quirion, Yomoni, Marie Quantier and Pritle.
Access to data for free or at reasonable costs – One of the biggest obstacles for retail investors has been access to information. For decades getting low latency financial news has been expensive, so only the institutions that could afford it had a monopoly on it. My start-up CityFALCON is tackling that exact problem, and we’re not the only company in the space. Stockflare and Stockviews also provide information on price data and historical analysis for retail investors.
Social trading – The typical model when it comes to asset managers is a 1-2% charge for their services. Why give 1-2% to asset managers when they often don’t even outperform the market? The advent of social trading allows you to follow smart traders and investors and mimic, or avoid, the same trades they make for a small fee. The company etoro does, and is the largest social trading platform with more than four and a half million users in 170 countries. Other players in the market include Ayondo, eToro, and Zulu.
Transaction execution – Like almost every human activity, investing is moving toward something ‘simple’ people want to do on their phone. Start-ups are starting to accommodate this, and cut much of the unnecessary parts of trading that have made it so costly in the past. Robinhood, based in the US is entirely online, so they have none of the frills that have come with transaction execution, like storefronts or manual account management. They’ve also demystified the entire process, by making investment free for people, and having an incredibly easy to use interface. Robinhood makes investing intuitive and simple for a person with any level of experience. Outside of the US, we’ve already started to see start-ups in stealth mode in the UK reinventing trade execution.
Financial markets inclusion – For the legacy institutions, people who are new to the markets and working with relatively modest sums of money were easy to ignore. Those kinds of people have a low lifetime value for the bank or brokerage, and so many of the barriers keeping new people out of the market arose exactly because the powers that were had no interest in changing the system that was so good to them. Now though, there are many avenues for people to break into the market and gain an understanding of just what’s happening within it. Finimize takes the most important financial stories each day, and distills them down to a daily easy to understand email. And we have launched CityFALCON for newbies, which is designed to help people figure out exactly how to invest. London Value Investing Club also has sessions for complete beginners.
Alternative investments – FInTech is creating a revolution, and right now the most revolutionary products we’re seeing at this early stage is alternatives investment models. This rush of new ways to invest is coming mostly from the peer-to-peer crowdfunding space. Companies like Seedrs, Crowdcube and Syndicate Room are employing innovative crowdfunding ideas that not only make things easier for the company or start-up being invested in, but also the investor.