The biggest challenge for FinTech companies and the wealth-management space
First, a large challenge is regulation and cost of acquisition. To beat that and become successful, FinTechs collaborate when they can while remaining focused on the particular technologies that they specialize in.
“In wealth management, the greatest friction at the moment is the costs.”
Willingness to use things like machine learning, robotics, AI, seamless integrations, and APIs can result in cost reductions.
“The way we use data to do better behavioral or predictive analytics can help the consumer ring.”
There’s a lot of value hidden in data, as well as in the use of data analytics internally to improve processes so as to reduce costs and identify areas that need work.
Regulations in Australia
Australia has a fairly strong licensing regime. There are plenty of regulators, and two important ones from a licensing perspective. To have a wealth-management business, as in any other part of the world, there are a lot of regulations to comply with. Companies also need to have a license to operate, and whether the company is a pension fund, a managed investment scheme, or a financial advisor, to get that license they need to be able to demonstrate they have the experience and prove that they’ve got the right skillset and capabilities.
Startups, especially those from outside the industry, bring a lot of fresh air and many great ideas, but they have to be confident that, especially with pensions, it’s long-term savings that they have to protect. It’s not the same scenario one would have with a dating or a restaurant app, for example.
If it doesn’t work out, the company can shut it down and people just delete the app from their smartphones. Taking people’s money, especially money that needs to be there in 40 years’ time when those people retire, needs a strong regulatory and credentials framework.
“There will be tension between innovation, consumer focus, emerging technologies, and the regulatory and credentials environment that you have to work in.”
But instead of ignoring that tension, it is necessary to recognize it and work with it—and the regulators in Australia have also recognized that. They are now trying to establish innovation departments; for instance, there is regulatory sandbox framework in Australia where some parts of the industry can experiment a bit. There hasn’t been a big take-up of it yet, since it’s fairly restrictive in terms of what can be done, but that will evolve once the regulator gets a bit more comfortable.
“Regulators need to keep up to date so they realize that they can benefit from some of these emerging technologies.”
Blockchain in wealth management
The most likely application area of blockchain in the wealth-management industry is at the back end, where an enormous amount of time, money, and effort is being spent on reconciliation: finding and fixing errors.
Many large custodians have got projects, the banks of all sizes look into the area of distributed ledger technology, even in Australia where the banks are part of the R3 consortium. Stephen says,