2020 will forever be remembered as the year of rapid changes. Many wealth and asset managers were left scrambling to pivot their business models to adapt to the new normal. While some companies used this period to completely transform and reposition their digital strategies, many providers opted for quick-fix solutions to patch up gaps in their wealth technology infrastructure.
However, there seems to be a definite shift in the way providers are treating their fintech adoption. This shift is being driven by changes in consumer preference, as confidence in digital processes continues to grow across the age spectrum. There is a growing momentum amongst wealth providers who now understand and accept that digital is the new battleground and is core to any future strategy and growth. 2021 is set to be a brilliant year for fintech, here’s why:
On top of this, incumbent financial service providers also face enormous pressure from non-traditional competitors who continue to encroach on their space. But it’s not only the bigger companies, such as Amazon, Walmart and Apple, who pose a risk - retail fintech platforms and neobanks continue to make headway as they expand their service offering to grow their market share.
One of the top performers continues to be Bank of America. By providing enhanced digital capabilities, they have successfully improved their customer interaction rate, while increasing their revenue and driving down costs. Let’s take a look and see how they are leveraging the benefits of technology to achieve growth.
Moving away from reactionary technology adoption
In New Zealand, we’re incredibly fortunate to be in a position where we can continue life with relative normality (at the current point in time anyway!). With many countries around the world experiencing their second or third wave of lockdowns, the pandemic is still very much ongoing and continues to challenge businesses.
In the year ahead, we’ll see a greater number of financial service providers taking on a more strategic approach, and less of a knee-jerk response when it comes to wealth technology adoption. Front-runner asset managers, who spend the highest percentage of their budget on innovation at 17%, are reporting 5 times more organic growth and 25% longer client retention. Data and technology adoption is crucial to help wealth providers emerge as leaders during turbulent business periods by supporting differentiated competitive advantage.
Successful innovation strategies must begin with top-level management and be supported by effective change management processes and sufficient budgets. Placing technology and digital projects into silos will lead to breakdowns in technology architecture across the entire organisation.
Increased competition from non-traditional providers
The threat of BigTech encroachment is nothing new. Leading technology giants, such as Google and Apple, have capitalised on the gaps between customer expectations and banks’ offerings. With a mass of customer data and sophisticated technology at their fingertips, they are perfectly poised to leverage these advantages and offer personalised wealth management solutions across the wealth spectrum.
Investors aren’t afraid to make the switch. In the APAC region, 98% of high net worth investors (HNWIs) have indicated that they are likely to use wealth management services offered by BigTech firms, as reported by the 2020 World Wealth Report by CapGemini. The pandemic has reaffirmed the need for investors to have immediate access to their investment accounts to gain certainty about their assets. Traditional providers need to up their game, and develop products and services that will retain and attract the next generation of well-researched and digitally-savvy investors.
It’s not only Bigtech firms who are eyeing wealth management. Another threat is lurking in the form of retail giants venturing into financial services. Walmart recently announced that they’ll be launching a fintech startup to service customers and employees with a range of financial services that goes beyond the financial services they already offer, such as layby and store cards.
Where incumbents are falling short marks an easy entry point for nontraditional providers. CapGemini's 2020 World Wealth Report highlights that over 60% of HNWIs indicate that personalised updates about products or services and receiving educational market information are the biggest weak spots for most incumbent wealth providers. These are data-rich customer touch-points, and providers can up their wow factor by tapping into fintech that can boost their digital offerings.
New FMA regulation to spur digital advice
The upcoming FMA legislation changes aim to standardise the delivery of financial advice and open the door for providers to enable digital advice across the financial services sector. We see this as a great opportunity for KiwiSaver providers to offer better digital services, including digital advice, to benefit the Kiwi population at large.
At the start of the pandemic last year, we witnessed a massive amount of switching going on amongst KiwiSaver investors, often at the detriment of their retirement savings. The upcoming regulatory change creates a great opportunity for providers to capitalise on the personalisation and communication benefits of robo-advice, to better guide and educate clients through periods of uncertainty.
For fund managers, this also provides a great opportunity to engage with existing and new customer segments, helping to provide a more holistic and educational experience for clients – without having to increase resource overheads.
Now that the dust has settled, investors are more open to fintech playing an active part in managing their investments. According to a recent report by Calastone, 40% of proactive investors cite accessibility and visibility as top factors to encourage more investing. Wealth technology can play a huge part in helping to drive better investment outcomes for clients by leveraging client data and combining it with innovative fintech and processes.