The first fintechs made their name in sectors such as lending – witness the crowdfunding revolution – and payments, where disruptive new entrants are now market leaders in many cases. But while it is not surprising that the innovators chose to focus on these less closely-regulated areas of the financial services market, the biggest prizes of all will in the end be found elsewhere. This is why we have now begun to see leading figures in the fintech sector begin to coalesce around the asset management sector.
They are right to do so. Asset management is currently characterised, far too often, by high fees and indifferent performance. An industry where customers are very often poorly served should be a prime target for disruptive new entrants. High barriers to entry such as the regulatory burden and the importance of brand value have provided incumbents with some protection so far. But neither issue is as problematic as in other areas of financial services – asset managers aren’t subject to the same level of capital requirements as the banks, for example; nor do they enjoy the same levels of brand recognition.
Moreover, fintechs can see where the opportunities lie. Big data and analytics tools, for example, have the potential to underpin a new breed of real-time investment strategies that can deliver much more predictable and bespoke returns than an intuitive approach to asset management. Technology can be an enabler in offering people access to services that were once out of their reach – from robo-advice to private banking and wealth management.
In the UK, Europe’s biggest centre of asset management, fintechs have woken up to the potential. A report published earlier this year by the consultancy PwC, which has a partnership with the Startupbootcamp accelerator programme, found that “investment management has ousted payments as fintech’s hottest area”. More than half the fintechs with which PwC is now working through Startupbootcamp are asset or investment management businesses of one type or another.
However, it’s not just the UK where fintechs are targeting the asset management sector – the same is true in both France and Germany too.
In France, for example, where consultancy EY says fintechs are attracting more venture capital business than ever before, a string of new ventures are targeting the asset management space. They include businesses such as Advize, set up in 2012 as the first French robo-advisor, which now offers everything from securities accounts to pension plans. Another example is Yomoni, launched in 2014 to target high-net-worth individuals with a model based on risk profiling tools.
In Germany, meanwhile, the fintech sector is catching up with its European rivals – there are now half as many again fintechs operating in Germany as there were 12 months ago. Close to 50 companies are vying for attention in the investment management market alone according to one recent analysis; the same research suggested that by 2020, German robo-advisors could have a market share of 2.5 per cent – the equivalent of around €25 billion.
France and Germany both still have some work to do in terms of ensuring regulation doesn’t get in the way of innovation. However, progress is being made. In France, the coming together of more than 35 fintechs to form France Fintech this year will give the sector a medium through which to make more influential representations to the regulatory authorities. In Germany, regulators have now begun to explore how they can get out of the way of digital technologies in fields such as robo-advice.
Such efforts underline the extent to which Europe’s policymakers now see the potential for fintechs to shake up asset management – in London, Paris and Berlin, that has already begun to happen.