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How Fintech is Shaping Asset and Wealth Management

Narendra Kumar

| Updated: Nov 02, 2017 | Category: Fintech

FinTech

Currently, FinTech is one of the hottest and newest domains in India. The term Fintech is usually confused for being a strictly technological and tech-savvy term. When in reality this term is the merger of financial services provided by various clients with the developments and advancements in the technological arena.

The Fintech developed out of the developments in the areas of financing services and the rapid growth of the technology. Today, FinTech is an innovator and enabler. Financial technology or known as Fintech began with nimbler start-ups first disrupting banks with their innovative approaches and later evolved with the latter also building partnerships with the banks to strengthen the entire financial services ecosystem.

The beginning is Venture Capitalists and Private Equity firms inserted exceptional amounts of money into Fintech start-ups and the long-standing and traditional financial services sector are certainly facing a period of unsettlement.

What is Fintech?

Fintech sector is an industry comprised of companies delivering technologies which improve and innovate financial service solutions. Such Companies aim is to simplify, streamline and expedite financial reporting services processes. Usually, Fintech is considered to a limited service wherein there is a huge variety of the different financial tech offerings available. To narrow it down, we have listed a brief overview of some of the most talked about segments on the rise in this arena:

Peer-to-Peer (P2P) lending:

P2P lending is an online platform to get loan easily. It has become widely popular over the last few years as an alternative loan provider.

Crowdfunding:

Similar to P2P, Crowdfunding emerged as a much needed alternative method of obtaining funds for start-ups as the banks scaled back their lending scope.

Mobile Payment Apps:

After demonetarization, mobile payment popularly known as m-payment has emerged significantly. In an increasingly tech-savvy world, mobile payments have rocketed in popularity.

Foreign Exchange platforms (FX):

FX services that are far more responsive can be delivered via Fintech firms enabling No Dealing Desk (NDD) execution of trades with no spread involved.

Trading Platforms:

Trading Platforms emerging in both retail and institutional investors. These platforms open the opportunity for investing to a far wider audience through lower fees and instant access.

Fintech and Asset and Wealth Management:

Fintech has captured the imagination of many financial services firms looking to leverage differentiating technology to accelerate their innovation. Even it truer than within the wealth and asset management sector.

Looking at how disruption has driven new cost models and customer experience in the banking sector can help create a framework for asset and wealth manager adoption strategies.

Fintech: Threat to Asset and Wealth Managers?

  • Asset and wealth managers have so far kept themselves isolated from fintech The following two factors became reasons for it:
  • Firstly, asset and wealth managers operate in a highly regulated, formal market. Which makes hard for start-ups to get a foothold.
  • Secondly, the nature of asset and wealth management products are not something that a typical consumer uses on a daily basis.
  • Asset management is operating in a different way than cash or credit transaction. Such complexity has made difficult for start-ups to target the core factory of a wealth management firm.
  • But, while these factors have provided a degree of security to date, there is no doubt that the value chain for the asset and wealth management industry is under threat.
  • The blockchain applications will largely be in areas such as settlement, which many asset managers have outsourced to custodians and other third parties.
  • Also, Asset and wealth managers have largely preferred to sit on the sidelines while the sell-side banks have taken the lead in exploring potential use cases.

 Asset Wealth Managers overlooking Fintech disruption:

  • Although fintech are disrupting in many arenas increasingly, the asset and wealth managers are still into believing that they are protected from potential disturbance by new entrants.
  • How fintech has disrupted the Banking and payments industries by offering new solutions could be the eye-opener for an asset and wealth managers but, they are underestimating the threat. They believe FinTech will have only a limited impact on their businesses.
  • Asset wealth Managers customer’s increasingly using applications and they are pushing to go mobile. Instead of following the wave of digitization, asset and wealth managers frequently offer little more than a website, believing this should meet their customers’ expectations.

How Asset and Wealth Management emerged by adopting Fintech:

  • Traditional and emergent fintech:

Traditional fintech is large, established technology companies. The major upside of such companies is that they are highly visible. The opportunities arise for asset and wealth management firms to form strategic partnerships which ensure that they will be at the forefront of the wave of technology adoption these large players are driving.

Another type of fintech is innovative firms with specific intermediation strategies. These are the disrupters with the ability to put elements of the traditional wealth management value chain under immediate threat.

Such start-ups can steal core business in the short term due to the barriers mentioned earlier, the opportunities are immense and there is likely to be some consolidation in the market.

  • Low-cost transaction platforms:

Since regulators apply higher fee transparency across the industry results organizations with higher operating costs and become less attractive to consumers.

Here, asset and wealth managers who are adaptable, agile and have low-cost models will become a winner. Since such platforms are highly disruptive as the fee models are low and simple to understand. Most consumers want to maximize returns without passing income to the asset manager.

In some overseas markets, new entrants have changed the revenue structure to leverage the inherent value in consumer data, rather than the trading fee. Under this model, they are able to employ aggressive advertising campaigns and upsell to other revenue-driving products.

  • Transactional and relationship-based customers:

Fintech players target two different types of client:

Transactional client: such client often defined by a fee for service arrangement. This type of client benefits from innovative technologies in self-service advice, payment processing, and automated account management.

Relationship-based Client: This kind of client seek out an ongoing personal relationship with their planner. Fintech can enhance such relationship through integrated multi-channel communication, single customer view, and ongoing risk mitigation.

  • Consumer experience and data analytics are key:

The consumer’s expectation from their asset and management providers are changing. Digitising services like, engage customer through real-time video chat, digitalized documentation has created a platform. Such platform offers immense back-office opportunity, the capacity to reduce storage costs and paper use, restructure the organization and bring increased efficiencies to the wealth management business model. And improve the customer experience.

Other way, start-ups are experimenting with the use of social media insights to provide predictive analytics. This can provide the ability to determine emerging market sentiment and identify which stocks are going to become buy or sell opportunities ahead of the traditional stock market.

It gives permission for new types of risk management strategies and profiles to be defined, enabling wealth managers to respond to market sentiment and redress and balance the investment mix in their portfolio before anyone else.

In a highly competitive market, adopting a solution like this could help attract new customers by maximizing returns and improving the investment profile.

  • Robo advisors making a way:

Robo-advisors have the potential to impact the industry’s entire investment and scaled advice model, by turning the handling of consumer-managed portfolios into a computer-driven process.

Considering how the use of robot-advisor models could change the way the wealth and asset manager advisory workforce is managed to go into the next few years, wealth managers will need to deal with this level of change.

The Way forward for Asset and Wealth Management:

Fintech will change asset and wealth management behavior and soon. The rise of digital-payments systems, e-KYC through Aadhar, online fund transactions, online statements of investments have made the existence of a fully automated wealth management platform possible. India’s large, under-banked population is largely absent from the stock and bond markets, and this presents a strong opportunity for players in the sector. Further, both SEBI and the RBI have proactively encouraged transparency and simplicity in the system, and FinTech innovations within the sector are positioned to guide large numbers of users towards formal investments.

Preparing for the change requires new ways of thinking and a strategy, plus an operating model to support it.

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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