In case you missed it, we previously discussed new trends in enterprise software for 2015 and beyond. Today, it’s time to delve into the disruption of the consumer finance and banking sector, as this has incredible implications for the future of finance and ultimately your business.
Have you ever heard of financial democracy? No? Me neither. But you’ve likely heard or read stories about the increasing inequality in wealth distribution.
In my view, the key factor that contributed to our financial system crash was not determined by individual misbehavior, but rather by the failure of the system itself–where decision making power is centralized within an array of institutions.
Due to the disturbed trust relationship between savers and the financial sector, individuals now require and expect to be more in control of their financial resources. In other words, we want to be the master of our own capital and logically so. This change in consumer preferences has deep implications for the financial sector, as individuals will favor highly-specialized service providers which can assure a higher level of transparency and decision power.
The industry is experiencing a major shift in terms of “unbundling” (as defined by Fred Wilson in the video below), moving away from the centralization of old. Now, only a few companies are fully part of this movement. But they are, in my view, disrupting the industry. More interestingly, these companies are just the pioneers of the movement–and that’s why the FinTech sector is really “hot” at the moment.
Now, let’s discuss examples of these pioneers I mentioned, as they embody the movement of increased control and transparency in today’s financial climate. I purposely chose to focus on FinTech consumer-driven solution, which provides the largest impact on the banking sector today.
Wealth / Investment Management
Investment management is a key activity for financial institutions. However, unless you are a top-tier customer with several million entrusted to the firm, it’s essentially impossible to track or control how your money is being managed.
After the massive shocks some institutions went through, savers are increasingly worried about their money and prefer to be more in charge of investment decisions. That’s probably one of the reasons why companies like WealthFront in the U.S., Nutmeg in the UK and Stockpot in AUS are gaining large market consensus.
These companies help individuals invest like an expert at a fraction of the cost. Not only have they lowered the barrier to entry (e.g., online sign up), but they also assure lower transaction and management fees (thanks to a leaner structure) as well as better, real-time transparency and control of the investment strategy.
Most importantly, they offer savers these benefits without requiring them to exert any effort in the decision making process. In other words, those institutions lessen the hassle of making a savvy choice by walking you through and facilitating your decisions, leaving you, the user, fully in charge.
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