You might be forgiven for thinking change is just about unheard of in the Financial Services industry. And sure, it’s fair to say brokers, wealth managers and big banks have enjoyed a certain status quo for many a year now.
But despite some of the barriers to entry, the long arm of technological innovation is grabbing hold of Financial Services and shaking it by the throat. As a sneak preview to our Fintech.Pioneers event in Berlin this February, we’ve picked out a few ways in which that disruption is happening.
All but the most stubborn ‘incumbents’ know about these developments all too well already. And for some of them, the following trends are the stuff of nightmares…
Your new-look wealth manager
Bad news for those Wolves of Wall Street: robo-advisors have arrived on the scene. Their mission is to make investing cheaper, simpler and more transparent. Typically dealing in Exchange Traded Funds and using algorithms such as Modern Portfolio Theory, robo-advisor startups such as Scalable Capital automate processes like customer onboarding, investment strategy creation and portfolio optimization. The savings are passed on to consumers.
Are robo-advisors better than the human variety? The jury’s out, but there’s enough potential in them that big players such as Deutsche Bank are developing their own versions. Meanwhile, some research suggests a better average yield per annum of 5–8%, so watch this space. And at least you can be sure your robo-advisor isn’t building a drug habit with your money.
“No bank will go out of business overnight because of the innovators, but those that don’t adapt will face existential threats in the medium to long term.” Scalable Capital Co-Founder Patrick Pöschl.
Peer-to-Peer Potential
Crowdfunding isn’t just about fundraising. Peer-to-peer models have growing application in the insurance industry, for example when policy owners form small groups in which a part of their premium goes into a cashback pool. Friendsurance is a great example of how this kind of sharing economy concept can apply in insurance. Trading, too has opened up to peer-to-peer thinking, with the likes of Wikifolio connecting investors with traders under a ‘social trading’ or ‘mirror trading’ concept. Expensive middlemen could be on the endangered species list, and with little hope of a panda-style comeback such as that recently pulled off by our furry friends in China.
“I’m strongly convinced that P2P models are just at the beginning of revolutionizing the wealth management sector” Wikifolio CEO Andreas Kern.
So long, trading fees
Democratizing stock market access is a big talking point right now. Startups such as Robinhood, whose ‘free stock trading’ tagline says it all, really, are shaking up an industry that hasn’t experienced major disruption in over a decade. Robinhood still earns money in the same way as ‘traditional’ online brokerages – by collecting interest from customers upgrading to a margin account and through interest on uninvested cash balances. But the elimination of trading fees mean even small amounts can now viably be invested. If your bank account looks like mine, then that’s good news for you and me.
Information for All
Fancy yourself as a trader? It’s more realistic than ever, thanks to the growing power of big data analytics to bring critical information to anybody, rather than an exclusive club of market insiders. Take for example the Dutch startup Owlin, which has shown itself capable of passing on ‘actionable insights’ to subscribers ahead of big financial data providers like Bloomberg.
Its best-known success story was that of the Tesla Model S fire in October 2013. The rise of predictions markets such as Hypermind and Augur (whose Perry Despeignes is among the speakers at Fintech.Pioneers) which theoretically pool information in a highly effective way, mean another increasingly useful tool for empowering laypeople to trade.
Building on Blockchain
After a few years of low-level disruption following the emergence of Bitcoin, startups are now targeting more fundamental pillars of the financial services sector through Blockchain. The open-source, decentralized technology is no longer just about fast, cheap payments. It also underpins the idea of ‘smart contracts’, which are self-executing, self-maintaining (and, of course, cheap) agreements. And Blockchain’s potential applications in trading are widespread, currently gobbling up most of the funding in the space.
This selection of startups was drawn from the mobility chapter of the latest Pioneers Discover Future Report. You can download this chapter as an ebook free of charge here.
