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AI, Big Data Analytics and Connectivity Will Be Key to the Success of FinTech

 6 min read / 

The golden era of traditional wealth management is slowly starting to fade.

Traditional wealth management institutions of bygone times are losing ground to a new breed of wealth managers – online brokers/discount brokers/robo-advisors/social trading/DIY platforms – collectively known as FinTech.

These newcomers offer different financial products in a different format than traditional wealth managers. The most common is through an app on one’s smartphone with little or no advice, using passive ETFs.

The New Kids on the Block

An exchange traded fund (ETF) – is an investment fund investment traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index such as a stock or bond index. ETFs may be attractive as investments because of their low costs, tax efficiencies and stock-like features.

This saves time and money because not having to apply for a full „wealth management“ authorisation from the Financial Conduct Authority (FCA) gives FinTech start-ups the possibility to enter the wealth management industry without the massive capital outlay that a traditional wealth management firm would have to table to start a new venture.

Many in the industry complain that this comparative advantage by FinTech start-ups is unfair and that all wealth management firms – big or small – should have the same compliance requirements as the incumbents. Furthermore, they believe there should be more scrutiny of FinTech start-ups by the FCA.

The FCA vs FinTech

The FCA, however, takes a different view and more importantly, a much different stance.

They actually embrace and support the FinTech ecosystem much tot the dismay of the established players by establishing departments catering to FinTech start-ups such as FCA Innovate as well as FCA Sandboxes to encourage FinTech start-ups and entrepreneurs to take the first steps in a highly regulated financial industry.

This has lead to an influx of UK-based as well as foreign FinTech startups, which prefer the respectable authority of the FCA as opposed to the lesser known regulatory authorities of other EU countries.

The reasons for this is two-fold – the first being that an FCA authorisation immediately raises the profile and reputation of any FinTech start-up and secondly, being based in London brings about many advantages such as infrastructure and network.

From a business and cost structure perspective, London is not the most economical place to do business, however, being in the centre of it all has its distinct advantages.

Various government institutions such as the FCA, Corporation of London and various departments from the office of the Mayor of London have taken many steps to support and promote the FinTech ecosystem.

Additional support and promotion have come from other non-profits such as Innovate Finance, Tech London Advocates and FinTech Circle.

The result is that FinTech has now become an integral part of the UK financial industry and has all the support from the UK government to grow even more, thus cementing the status of London as the FinTech capital of the world.

Disruptive Technology

In the new era of superfast connectivity and digitalisation of everything, the biggest beneficiaries are the Millennials. From their smartphone, any Millennial can access the financial markets and start trading immediately.

There are countless financial trading and investment apps that provide all the information, news feeds and data for anyone to trade the financial markets at their convenience from anywhere, at any time. What used to be an exclusive domain of the wealthy and ultra-wealthy has now become as common as banking, it is available everywhere and anyone can invest and trade on their smartphone.

This „democratisation“ of wealth management has enabled retail investors and mass consumers to invest and trade the financial markets and make their own investment decisions at a much lower cost.

The standard wealth management fee of “2 + 20” (2% management fee + 20% performance fee) has now been significantly lowered to a mere 0.75% management fee (in some cases even as low as 0.25%). Robo-advisors have even pushed down the management fee to 0%. However, one might question the viability of such zero-margin business models.

This leaves the individual investor with a lot of choices, especially when it comes to costs and fees. However, apart from the costs, Millennials prefer user-friendly technology, which makes it possible to provide a great product or service without having to compromise on security. And it is exactly this technological advantage that gives FinTech its comparative advantage.

Furthermore, “disintermediation” has removed the “middle man” in many areas of expertise such as insurance, property, online brokerages, credit providers and wealth management, just to name a few.

AI, Analytics and Big Data

Banks and financial institutions around the world store more financial data than entire governments and can use this data at free will in compliance with the regulatory bodies of their respective countries.

All this big data is considered by each bank and financial institution as “proprietary” and therefore they are not keen to share this information through the Open API (application programming interface – which are sets of requirements that govern how one application can communicate and interact with another).

The reason for this is that big data spells big profits. Leveraging big data with analytics and artificial intelligence gives banks and financial institutions the comparative advantage over newcomers in the financial industry.

However, the disruption and lower profits resulting from FinTech newcomers will force banks and financial institutions around the world to consolidate, downsize and reinvent their business models in order to stay competitive in this digitally-enhanced world.

Conclusion

Government promotion and regulation of open API standards will gradually facilitate access to big data that will result in the financial industry becoming more efficient. This will enable third parties to analyse, process and use financial data to build superfast data infrastructures as well as give third-party developers the possibility to design and build useful applications that benefit the average consumer.

Average consumers and retail investors are offered all the necessary tools and information – that the big banks and financial institutions have utilised to their own advantage over the past decades – in the simple user-friendly format of an app on a smartphone.

Artificial intelligence, big data analytics and superfast connectivity are key to the success of FinTech and this will profoundly transform the banking and wealth management industry across the globe.

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Whatsapp Launches New Venture Aimed at Businesses

 1 min read / 

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Whatsapp has launched a new app targeted at businesses, called the Whatsapp Business App, which they claim will enable companies to “communicate more efficiently” with present and potential customers.

This forms part of Whatsapp’s wider strategy to branch out into the corporate world. It plans to use the app to generate new revenue by charging businesses for using the extra communication tools that will enable them to better connect with their customers.

Although the app is set for worldwide release, at present it will only be available in Indonesia, Italy, Mexico, the UK and US. It includes a feature which indicates a business is authentic with a green tick badge next to their name.

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Amex: Troubled Credit Card Company Reports $1.2bn Net Loss

 2 min read / 

Amex annual report

On Thursday, American Express, or Amex, reported a net loss of $1,197m in the fourth quarter, the first net loss the company has experienced for 26 years.

Although the company stated that revenue from interest expenses was up 10% to $8.8bn, Amex said recent reforms to the US tax code meant the company incurred extra costs, including a repatriation cost on its foreign assets as well as a devaluation of its deferred tax assets. It estimates total costs amounted to $2.6m.

For the full year, net income was $2.7bn compared with $5.4bn the company earned in 2017. However, even with the estimated $2.6m the company claims it incurred from the recent tax charge, net earnings were still $5.3bn, $100m lower compared to last year.

In New York, American Express shares (AXP) took a near 1% tumble at the beginning of trade with shares finishing the day on $99.90.  JPMorgan Chase and Goldman Sachs anticipate greater earnings for 2018.

“Overall, we believe the Tax Act will be a positive development for both the U.S. economy and American Express” said CEO and chairman Kenneth Chenault. Chenault also said he will be leaving Amex in “very strong hands” when his successor, Steve Squeri takes over next month.

American Express has suffered from an ever-reducing share in the credit card market and ended its 14-year relationship with American warehouse chain Costco who in 2016 made an agreement with the market leader, Visa.

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Companies

Tencent Extends Facebook Lead

Tencent Facebook

Tencent has shot past Facebook to become the world’s most valuable social network.

Editor’s Remarks: Although Tencent briefly overtook Facebook in terms of market cap in November, the recent selloff of Facebook shares prompted the Chinese tech titan to regain the lead. Facebook investors responded negatively to news that Mark Zuckerberg’s plans to highlight family and friend-based content on the newsfeed would reduce the amount of time people spent on the site. Shares in Facebook have fallen 5% since that announcement, enabling Tencent to gain a $19bn lead over the US company. Tencent’s growth has been spurred on by its diversification away from its flagship messaging app, WeChat, and into video games.

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