Recently Equisoft attended the 2019 Canada FinTech Forum in Montreal. Thousands of key players from financial institutions and technology providers packed the Palais des Congrès, networking and taking in the showcase of the latest global trends in FinTech. More than a hundred top executives, tech company founders and analysts delivered great presentation covering everything from the evolution of the world FinTech scene to cyber security and quantum computing in financial services.
While listening to the speakers and talking with other attendees I was particularly intrigued by two trends impacting the industry.
Disintermediation: an extinction level threat to financial services
Disintermediation is commonly known as the process of “cutting out the middle man.” I can have great benefits to the consumer but bring disastrous results if you’re the man in the middle. For financial services companies the looming threat is the potential entry into the market by big non-traditional players like Google or Amazon. The idea of a retailer or tech giant offering investments, selling insurance or providing banking services may have seemed far-fetched a few years ago, but consumer attitudes have changed—it is now very possible.
David Deane from Ernst & Young described consumers as more willing than ever before to utilize FinTech products from a ‘non-traditional’, non-financial services company.
- 45% of consumers would be willing to utilize FinTech offerings from a traditional retail company.
- 44% from a telecom company like Bell.
- 41% from a technology or social media company like FaceBook or Google.
- Most surprisingly, 33% of consumers would be willing to accept such products from their power and utilities providers.
One day you might be opening a line of credit or building your investment portfolio through Twitter, Bell or the local power company. The reason why this surprising situation has arisen comes down to trust and changing customer expectations.
Expectations and trust
Consumer expectations have been heightened by the accelerated and highly-personalized online service they receive every day from companies in other industries. It’s now common to be able to track your pizza from the restaurant to your front-door, be given accurate and insightful movie recommendations that you can stream immediately, or one-click order that perfect mystery novel you’ve been searching for.
These interactions are powered by data, custom-fit to the individual, and processed in real-time—unless, perhaps, you’re trying to change a beneficiary on your life insurance policy or need to re-balance your portfolio. Financial services is lagging—and that’s creating an increasing opportunity for other industries to enter the market.
As the Ernst & Young study shows, consumers have reached the point where they are satisfied enough with their online interactions with non-traditional firms that the idea of having an Amazon credit card or a Google investment portfolio is no longer a stretch.
What business are you really in?
The change has already begun. If we look around the marketplace, we see that the lines between industries are blurring like never before. The millions of happy relationships built on great digital experiences generate billions of dollars in revenue—giving companies not only the cash reserves to finance an entry into financial services, but also experience as money managers.
Starbucks has a treasury of billions of dollars built up from gift card sales. Sure, they brew coffee, but they are, in essence, managing their own money market funds.
Is Ford a manufacturing company or a financial services company? Well, according to JD Power, “Dealerships made an average of $908 per new vehicle last year on their finance and insurance business, far more than the $420 they earned off the actual vehicle sale.”
Ant Financial, an affiliate of Asian retail colossus, Alibaba is the largest money market fund in the world. It lets Alipay customers invest their spare cash for short periods before they spend their money online.
Companies like these have the technology, the client base and the money to enter and perhaps win in the financial services market. The reality is, ultimately, the competitive edge will go to the companies that best capture the trust and imagination of the consumer—no matter what industry they traditionally competed in.
Subscription models migrate from Netflix to wealth management
Another interesting trend that emerged at the FinTech Forum was the change in fee structures for financial advice—again driven in part by changes in customer expectations, as well as regulatory evolution.
The idea that seemed to be getting a lot of traction was the trend towards a subscription model for financial services. Instead of paying the traditional commissions or fees on a per transaction basis, consumers are now able to pay a low monthly subscription fee in order to get financial advice from an advisor and execute trades. Because consumers are already used to paying subscription fees for popular services they use every day, like Netflix, the concept is easy for them to understand. And, unlike traditional financial services fee structures, its completely transparent.
One leading financial institution, for instance, now offers a service in which they charge a $300 initial fee and then $30 /month to get base-level service. Consumers can have a broker make securities transactions, like selling a stock, without having to pay a commission. If they wanted to invest, an advisor would help them build a bundle of funds without charging an advisory fee.
This development is a reaction to changes in the regulatory environment in Canada and the US that have increased fee transparency and tightened ‘best interest’ rules. The subscription model encourages advisors to become more advice-based rather than transactionally oriented. It aligns perfectly with best interest regulations—removing any incentive to churn a client’s account or favor products that would compensate the advisor better. It’s a new way for forward-thinking companies to deliver enhanced customer experience, build trust and gain a competitive advantage.
What became clear at the FinTech Forum is that, more than ever, customer expectations and the regulations that support those needs are driving fundamental change in the wealth management industry.
The threat of competition from non-traditional companies and the move towards a subscription model are causing companies to re-think their value proposition and find new ways to deliver accelerated, highly personalized service. The financial services companies that anticipate the coming disruptions and provide superior digital experiences for the modern consumer will thrive in the coming years.
This is very much in line with Equisoft’s commitment to innovation and our vision to provide modernization expertise and solutions to help all stakeholders in the industry reach their ultimate goal—providing the best service possible to their clients.
To continue the conversation about future of our industry and the role of technology, feel free to contact me.
Vice President, Wealth Management Solutions
+1 514 989-3141 ext. 201