There may be some readers who have been around long enough to remember the ‘tech bubble’ of the late 1990s.
Tech company valuations and stock markets went stratospheric, while whizzy tech companies promised an ultra-efficient future, with increased productivity and no more economic boom and bust.
The subsequent bear market put a stop to most of these fantastic future projections alongside a heavy dose of schadenfreude for sceptical observers (especially those analysts who had lost their jobs keeping to their common sense valuations during the bubble).
Over the following 18 year period, there is a sense that while tech stocks were a bubble and burst, there is a nub of truth to how tech can increase productivity, efficiency and competition.
More recently, and as smartphones have become part of everyday life, it is obvious how reliant we have become on tech for GPS navigation, organising our private lives, and indeed its increasing use within the financial sector.
And yet there is an undeniable sense of tech-bubble déjà vu about the latest cohort of ‘fintech’ companies.
Again the investing public and advisers are presented with a gamut of new firms, with quirky names, who aspire to re-invent, or disrupt, current business models in finance, investing, insurance and advice. The question is, should advisers pay any attention?
Fintech – what exactly is it?
Firstly, we should explain the kind of companies and services we are talking about that fall under the label ‘fintech’, or ‘financial technology’ firms.
These are companies who are aiming, via the use of new technology, mobile phones, the internet, or ‘big data’, or some combination of these, to enable the business of banking and financial firms.
This is a broad definition, and includes everything from ‘insurtech’ (insurance technology), ‘regtech’ (regulation or compliance technology) or peer-to-peer firms (including investing, lending and insurance). Admittedly the sector is a complete buzzword bingo, so we give some examples below:
Car insurance telematics | Likely the most familiar and accept use of insuretech, by installing ‘blackbox’ devices in cars, insurers are able to tailor premiums more accurately to driver styles, as opposed to the more traditional but blunt customer demographics of age, postcode and car model. |
Home insurance black box | Similar to the above telematics, but instead ‘smart home’ devices that monitor home heating and water systems for drops in pressure, and warn of problems and leaks before they cause major damage |
Life insurance utilising big data | Insurers offering reduced life insurance premiums for customers who maintain healthy lifestyles, based on data from their grocery shopping and gym memberships |
Peer-to-peer networks | Most commonly known for linking savers and borrowers for lending, but has also been used for peer-to-peer insurance among niche insurance groups |
Challenger banks | New banks being licensed in the UK, who aim to challenge the traditional high street banks, usually with a large online presence via customer ‘marketplaces’. Their main advantage is to offer convenient customer access and new financial products, and not to be held back by incumbent legacy IT systems |
Attitude to risk systems and risk ratings | In order to meet RDR regulations, online platforms that integrate measuring client risk attitudes, documentation and recommendation of suitable investments |
Is fintech a threat to advisers?
In short: yes. Many fintech apps are about placing more decision making power in the hands of the retail investor.
These include robo-advice services and the new ‘challenger’ banks. Usually a key aim of these apps is to ease the pain involved with opening an account or depositing funds. For example, the same apps aim to “to move money into an account in less than five clicks”, or savings apps that use ‘round ups’ on contactless purchases.
(Roundups take contactless purchases and roundup to the nearest pound, with the difference being automatically deposited into savings.)
Given how fintech apps promise to reduce costs for retail investors, there is hope that fintech apps may be able to fulfill the so-called advice gap of currently under-served consumers.
The issue for advisers is that if investors become accustomed to more user-friendly and seamless integration to manage their daily finances, very likely they will look for a similar level of service from their financial adviser.
