Industry
What's next for fintech?
May 31, 2023
Ah, Fintech. A behemoth turbocharged by the happenings of 2008, that has since changed just about everything when it comes to how we interact with our money. At last count there were a little over 26,000 fintechs globally, running the full financial services gamut from robo investing to mortgage brokering.
Generally, these services are accessible online or via an app. They offer consumers freedom, choice and flexibility; we can pick and choose the services we want, and access them quickly from our smartphones.
The last big milestone
The pandemic triggered the ‘rise of the retail investor’, with individuals flocking to the public markets in previously unseen numbers. It was estimated that in the US alone, 2020 welcomed a staggering 10 million new retail investors; 60% of those entered the markets via retail investment platform and fintech darling, Robinhood. It wasn’t a phenomenon unique to the US – the rise of the retail investor was global, and stretched from Europe to Australia.
This was a coming-of-age moment for the fintech sector. Downloading an app to actively manage money became standard practice for consumers all over the world – if it wasn’t before the pandemic, it certainly was after it. Platforms offering investment tools were one of the fastest growing in the sector; in 2021, wealth management fintechs including Nutmeg, Embark and Interactive Investor were all snapped up by major banks.
The pandemic might have sparked record retail participation in the markets, but the investment trend continued far beyond lockdowns. While 44% of 2020’s new retail investors in the US said they were trading for the short-term in their first year in the markets, only 28% said they would take the same, short-term approach the following year. Most were now long-term investors, intending to manage at least some of their wealth themselves – a feat almost unheard of in a pre-fintech world.
A (brief) state of play
When they initially burst onto the scene in the wake of the Global Financial Crash, early fintechs distinguished themselves by doing one thing well. This wasn’t your parents’ bank, offering services that included mortgages, investments, current accounts and who knows what else. No, these were user-centric solutions offering one service, which they did exceptionally well.
This prompted an ‘unbundling’ of financial services that ran parallel with the development of smartphones. Consumers were happy to leverage any number of service providers to manage their money – after all, if you don’t need to visit physical branches and queue to see an advisor any more, there’s little incentive to stick to a ‘one-stop-shop.’
As is always the case, the nascent sector was reliant on early adopters. For investment platforms, this translated to a high risk audience and most specialised in more speculative assets like FX and CFDs.
But as the sector matured there were inevitable mergers, with incumbents and larger players buying out many of the smaller companies to enable them to ‘rebundle’ those services. This created offerings that looked more like the traditional services consumers were familiar with, just with a better user experience and additional features, such as instant currency exchange.
The chance to actively manage their money, savings and investments online started to appeal to more than just the early adopters and the sector began to innovate for this new mass audience. Helped by opening banking and embedded finance initiatives, as well as fierce competition in an increasingly well funded market, disruption became the name of the game for fintech.
We saw the emergence of innovative models such as ‘automatic round ups’, which add a few pennies to every purchase a user makes via a linked bank account and automatically invests or squirrells it away into a savings account. Saving without noticing it.
Investment platforms also changed as they matured and their early audience of speculators gave way to users with a broad range of investment objectives. Many added new assets, alongside products such as ESG investments and tax wrappers.
This combination of new products and new models gave financial literacy and user education a new importance, and many of the most successful fintechs were (and continue to be) those that invest heavily in educational tools.
Trends like digital transformation and the digitally native millennial and centennial generations coming into their buying power have also created a sizable tailwind for the sector at large. In 2021, the wealthtech market was estimated to have generated $4.8bn, and is expected to top $16bn by 2031.
The changing shape of demand
The initial investment products in fintech were focused on public markets. But the maturing sector is already turning its attention to real assets and the delivery of distribution channels that can open up the private markets to retail investors will define the sector’s adolescence. Retail investors now own a record share of public markets, and they’re unlikely to release their grip. New generations are demanding more from their providers – more choice, more opportunity to diversify and more accountability.
Actively managing their investments is now the norm for many individuals, and they’re growing in sophistication the longer they’re exposed to the market. As volatility abounds in the public markets and central banks battle to curb inflation, real assets offer a compelling alternative for those seeking to diversify and preserve capital. Traditionally, private asset classes like real estate and infrastructure have been the preserve of institutions, but retail investors now want the same opportunities to diversify.
Currently, private assets are predominantly distributed by wealth managers. As private assets and distribution solutions are digitalised, supported by blockchain technology, the investment platforms that are already successfully distributing public market opportunities could also provide individuals with access to the private markets.
For the moment though, these providers are still separate – mirroring the ‘unbundling’ of the early fintech sector – with distinct providers that can successfully distribute private market investments, and the established players focusing on public markets. But as digitisation progresses and retail demand for private market assets increases, we will likely see an aggregation. The larger fintechs and more innovative incumbents will seek to meet this demand by partnering with those who can enable the successful distribution of private assets.
In a future where private markets are as digital as the public markets are today, these partnerships will enable retail investors to truly diversify. Platforms that provide access to both private and public markets will become the norm, enabling investors to hold a truly diversified portfolio and employ similar investment strategies to institutional investors.
—
Nothing in this article constitutes financial advice or guidance. The content in this article is an opinion and is for general information purposes only. This article is not intended to be relied upon to make financial decisions. It is not intended to be financial advice. The value of your investment can go up or down so you may get back less than your initial investment. The article may contain links to third-party websites or resources. Hedgehog provides these links and resources only as a convenience and is not responsible for the content, products, or services on or available from those websites or in those resources, the links displayed on such websites or the privacy practices of such websites.
Industry
What's next for fintech?
May 31, 2023
Ah, Fintech. A behemoth turbocharged by the happenings of 2008, that has since changed just about everything when it comes to how we interact with our money. At last count there were a little over 26,000 fintechs globally, running the full financial services gamut from robo investing to mortgage brokering.
Generally, these services are accessible online or via an app. They offer consumers freedom, choice and flexibility; we can pick and choose the services we want, and access them quickly from our smartphones.
The last big milestone
The pandemic triggered the ‘rise of the retail investor’, with individuals flocking to the public markets in previously unseen numbers. It was estimated that in the US alone, 2020 welcomed a staggering 10 million new retail investors; 60% of those entered the markets via retail investment platform and fintech darling, Robinhood. It wasn’t a phenomenon unique to the US – the rise of the retail investor was global, and stretched from Europe to Australia.
This was a coming-of-age moment for the fintech sector. Downloading an app to actively manage money became standard practice for consumers all over the world – if it wasn’t before the pandemic, it certainly was after it. Platforms offering investment tools were one of the fastest growing in the sector; in 2021, wealth management fintechs including Nutmeg, Embark and Interactive Investor were all snapped up by major banks.
The pandemic might have sparked record retail participation in the markets, but the investment trend continued far beyond lockdowns. While 44% of 2020’s new retail investors in the US said they were trading for the short-term in their first year in the markets, only 28% said they would take the same, short-term approach the following year. Most were now long-term investors, intending to manage at least some of their wealth themselves – a feat almost unheard of in a pre-fintech world.
A (brief) state of play
When they initially burst onto the scene in the wake of the Global Financial Crash, early fintechs distinguished themselves by doing one thing well. This wasn’t your parents’ bank, offering services that included mortgages, investments, current accounts and who knows what else. No, these were user-centric solutions offering one service, which they did exceptionally well.
This prompted an ‘unbundling’ of financial services that ran parallel with the development of smartphones. Consumers were happy to leverage any number of service providers to manage their money – after all, if you don’t need to visit physical branches and queue to see an advisor any more, there’s little incentive to stick to a ‘one-stop-shop.’
As is always the case, the nascent sector was reliant on early adopters. For investment platforms, this translated to a high risk audience and most specialised in more speculative assets like FX and CFDs.
But as the sector matured there were inevitable mergers, with incumbents and larger players buying out many of the smaller companies to enable them to ‘rebundle’ those services. This created offerings that looked more like the traditional services consumers were familiar with, just with a better user experience and additional features, such as instant currency exchange.
The chance to actively manage their money, savings and investments online started to appeal to more than just the early adopters and the sector began to innovate for this new mass audience. Helped by opening banking and embedded finance initiatives, as well as fierce competition in an increasingly well funded market, disruption became the name of the game for fintech.
We saw the emergence of innovative models such as ‘automatic round ups’, which add a few pennies to every purchase a user makes via a linked bank account and automatically invests or squirrells it away into a savings account. Saving without noticing it.
Investment platforms also changed as they matured and their early audience of speculators gave way to users with a broad range of investment objectives. Many added new assets, alongside products such as ESG investments and tax wrappers.
This combination of new products and new models gave financial literacy and user education a new importance, and many of the most successful fintechs were (and continue to be) those that invest heavily in educational tools.
Trends like digital transformation and the digitally native millennial and centennial generations coming into their buying power have also created a sizable tailwind for the sector at large. In 2021, the wealthtech market was estimated to have generated $4.8bn, and is expected to top $16bn by 2031.
The changing shape of demand
The initial investment products in fintech were focused on public markets. But the maturing sector is already turning its attention to real assets and the delivery of distribution channels that can open up the private markets to retail investors will define the sector’s adolescence. Retail investors now own a record share of public markets, and they’re unlikely to release their grip. New generations are demanding more from their providers – more choice, more opportunity to diversify and more accountability.
Actively managing their investments is now the norm for many individuals, and they’re growing in sophistication the longer they’re exposed to the market. As volatility abounds in the public markets and central banks battle to curb inflation, real assets offer a compelling alternative for those seeking to diversify and preserve capital. Traditionally, private asset classes like real estate and infrastructure have been the preserve of institutions, but retail investors now want the same opportunities to diversify.
Currently, private assets are predominantly distributed by wealth managers. As private assets and distribution solutions are digitalised, supported by blockchain technology, the investment platforms that are already successfully distributing public market opportunities could also provide individuals with access to the private markets.
For the moment though, these providers are still separate – mirroring the ‘unbundling’ of the early fintech sector – with distinct providers that can successfully distribute private market investments, and the established players focusing on public markets. But as digitisation progresses and retail demand for private market assets increases, we will likely see an aggregation. The larger fintechs and more innovative incumbents will seek to meet this demand by partnering with those who can enable the successful distribution of private assets.
In a future where private markets are as digital as the public markets are today, these partnerships will enable retail investors to truly diversify. Platforms that provide access to both private and public markets will become the norm, enabling investors to hold a truly diversified portfolio and employ similar investment strategies to institutional investors.
—
Nothing in this article constitutes financial advice or guidance. The content in this article is an opinion and is for general information purposes only. This article is not intended to be relied upon to make financial decisions. It is not intended to be financial advice. The value of your investment can go up or down so you may get back less than your initial investment. The article may contain links to third-party websites or resources. Hedgehog provides these links and resources only as a convenience and is not responsible for the content, products, or services on or available from those websites or in those resources, the links displayed on such websites or the privacy practices of such websites.
Industry
What's next for fintech?
May 31, 2023
Ah, Fintech. A behemoth turbocharged by the happenings of 2008, that has since changed just about everything when it comes to how we interact with our money. At last count there were a little over 26,000 fintechs globally, running the full financial services gamut from robo investing to mortgage brokering.
Generally, these services are accessible online or via an app. They offer consumers freedom, choice and flexibility; we can pick and choose the services we want, and access them quickly from our smartphones.
The last big milestone
The pandemic triggered the ‘rise of the retail investor’, with individuals flocking to the public markets in previously unseen numbers. It was estimated that in the US alone, 2020 welcomed a staggering 10 million new retail investors; 60% of those entered the markets via retail investment platform and fintech darling, Robinhood. It wasn’t a phenomenon unique to the US – the rise of the retail investor was global, and stretched from Europe to Australia.
This was a coming-of-age moment for the fintech sector. Downloading an app to actively manage money became standard practice for consumers all over the world – if it wasn’t before the pandemic, it certainly was after it. Platforms offering investment tools were one of the fastest growing in the sector; in 2021, wealth management fintechs including Nutmeg, Embark and Interactive Investor were all snapped up by major banks.
The pandemic might have sparked record retail participation in the markets, but the investment trend continued far beyond lockdowns. While 44% of 2020’s new retail investors in the US said they were trading for the short-term in their first year in the markets, only 28% said they would take the same, short-term approach the following year. Most were now long-term investors, intending to manage at least some of their wealth themselves – a feat almost unheard of in a pre-fintech world.
A (brief) state of play
When they initially burst onto the scene in the wake of the Global Financial Crash, early fintechs distinguished themselves by doing one thing well. This wasn’t your parents’ bank, offering services that included mortgages, investments, current accounts and who knows what else. No, these were user-centric solutions offering one service, which they did exceptionally well.
This prompted an ‘unbundling’ of financial services that ran parallel with the development of smartphones. Consumers were happy to leverage any number of service providers to manage their money – after all, if you don’t need to visit physical branches and queue to see an advisor any more, there’s little incentive to stick to a ‘one-stop-shop.’
As is always the case, the nascent sector was reliant on early adopters. For investment platforms, this translated to a high risk audience and most specialised in more speculative assets like FX and CFDs.
But as the sector matured there were inevitable mergers, with incumbents and larger players buying out many of the smaller companies to enable them to ‘rebundle’ those services. This created offerings that looked more like the traditional services consumers were familiar with, just with a better user experience and additional features, such as instant currency exchange.
The chance to actively manage their money, savings and investments online started to appeal to more than just the early adopters and the sector began to innovate for this new mass audience. Helped by opening banking and embedded finance initiatives, as well as fierce competition in an increasingly well funded market, disruption became the name of the game for fintech.
We saw the emergence of innovative models such as ‘automatic round ups’, which add a few pennies to every purchase a user makes via a linked bank account and automatically invests or squirrells it away into a savings account. Saving without noticing it.
Investment platforms also changed as they matured and their early audience of speculators gave way to users with a broad range of investment objectives. Many added new assets, alongside products such as ESG investments and tax wrappers.
This combination of new products and new models gave financial literacy and user education a new importance, and many of the most successful fintechs were (and continue to be) those that invest heavily in educational tools.
Trends like digital transformation and the digitally native millennial and centennial generations coming into their buying power have also created a sizable tailwind for the sector at large. In 2021, the wealthtech market was estimated to have generated $4.8bn, and is expected to top $16bn by 2031.
The changing shape of demand
The initial investment products in fintech were focused on public markets. But the maturing sector is already turning its attention to real assets and the delivery of distribution channels that can open up the private markets to retail investors will define the sector’s adolescence. Retail investors now own a record share of public markets, and they’re unlikely to release their grip. New generations are demanding more from their providers – more choice, more opportunity to diversify and more accountability.
Actively managing their investments is now the norm for many individuals, and they’re growing in sophistication the longer they’re exposed to the market. As volatility abounds in the public markets and central banks battle to curb inflation, real assets offer a compelling alternative for those seeking to diversify and preserve capital. Traditionally, private asset classes like real estate and infrastructure have been the preserve of institutions, but retail investors now want the same opportunities to diversify.
Currently, private assets are predominantly distributed by wealth managers. As private assets and distribution solutions are digitalised, supported by blockchain technology, the investment platforms that are already successfully distributing public market opportunities could also provide individuals with access to the private markets.
For the moment though, these providers are still separate – mirroring the ‘unbundling’ of the early fintech sector – with distinct providers that can successfully distribute private market investments, and the established players focusing on public markets. But as digitisation progresses and retail demand for private market assets increases, we will likely see an aggregation. The larger fintechs and more innovative incumbents will seek to meet this demand by partnering with those who can enable the successful distribution of private assets.
In a future where private markets are as digital as the public markets are today, these partnerships will enable retail investors to truly diversify. Platforms that provide access to both private and public markets will become the norm, enabling investors to hold a truly diversified portfolio and employ similar investment strategies to institutional investors.
—
Nothing in this article constitutes financial advice or guidance. The content in this article is an opinion and is for general information purposes only. This article is not intended to be relied upon to make financial decisions. It is not intended to be financial advice. The value of your investment can go up or down so you may get back less than your initial investment. The article may contain links to third-party websites or resources. Hedgehog provides these links and resources only as a convenience and is not responsible for the content, products, or services on or available from those websites or in those resources, the links displayed on such websites or the privacy practices of such websites.