It is safe to say most people will be happy when 2020 is over. The year has brought a number of unprecedented challenges that businesses have had to navigate. As we enter 2021, it is time to predict what the big trends might be for the new year.
The past 12 months have dragged and it feels like it has been a lot longer than it has been. The pandemic has caused financial services to drastically adapt how they operate, with many financial institutions changing their five year digitalisation strategies into five month strategies. With staff working remotely and consumers unable to go into branches, 2020 has pushed more people to the online world and things are unlikely to go back to pre-Covid ways.
The wealth management space is one of the industries to feel the effects of the pandemic. With consumers unable to go into branch to speak with advisors, the pandemic has encouraged financial institutions to increase their usage of online services so they can continue to support customers. With the financial uncertainty caused by the virus, people were likely to be concerned with their money and investments, and having the ability to get reassurance from service providers is much needed.
Funding into WealthTech has been steadily increasing each year. In 2015, global investment into the sector reached $1.9bn across 298. In 2019, the total funding in WealthTech companies reached a sizable $8.6bn, across 388 transactions. Even though 2020 has been a turbulent year, there has still been a lot of capital invested. The total capital invested during the first three quarters of 2020 has reached $6.1bn through 296 deals.
A recent survey from EY claimed that 60% of banks are planning to divest in the next 12 months to support their resilience. Of those looking to divest, 70% said they would be investing the capital back into their core business, with 43% stating this will include upgrading their technology.
As 2020 has proved, you can never accurately predict the future. However, these are the trends that are likely to happen.
Digitalisation and Personalisation
This year has shown the benefits of having digitised services and financial institutions have rapidly accelerated their adoption of technology. There is no longer time for firms to slowly adopt technology. Not only are people being forced to use online services, they are also beginning to enjoy the convenience of it. Once the pandemic is over, people are likely to continue interacting with their banks digitally and will expect it to be a seamless experience.
WealthObjects founder and CEO Uday Nimmakayala said, “The most significant trends for 2021 will be increased focus on the digitalisation and personalisation in the wealth and investment industry. This trend may come in two forms, one in the shape of a fully digital self-service end to end solutions such as D2C and Robo-Adviser propositions, and the other in the form of increased uptake of Hybrid Advisory solutions by Wealth and Investing firms across all sizes. We are best placed with our technology to help firms implement these business models, and firmly believe our WealthObjects platform modules and APIs products are ready to serve these trends in 2021.”
As companies look to increase their digitalisation strategies, they will look towards buying services that enable them to quickly add products. APIs have become a crucial tool to ensure firms can quickly add new services to their framework, without having to do masses of coding or integration. Kidbrooke’s co-founder Fredrik Davéus said, “Acceleration of automation through digitalisation APIs will be the preferred way to buy services enabling a higher degree of automation and personalisation of the guidance and advice processes.”
Personalisation is one of the most important aspects. Consumers are increasingly looking towards services that are tailored to their specific needs, rather than being given a generic one-size-fits-all approach to products. Consumers are a lot more confident to switch service provider and as a result, financial institutions need to ensure they can meet customer expectations or fear losing customers to rivals that can.
Davéus added, “Another point here is that since the industry has focused on improving onboarding it is now easier than ever for customers to switch providers. This means that old truths about customers being very unlikely to change banks etc will start to erode and a focus on providing services that promote retention will be crucial going forward.”
Consolidation in the market
The WealthTech space has grown substantially over the past few years. As the previously mentioned data showed, a total of $33.5bn has been invested in the space since 2015, across 1,934 deals. A natural process for every sector is consolidation. As the WealthTech space matures there will inevitably be both winners and losers and 2021 looks to see this trend only continue.
Kidbrooke’s Fredrik Davéus said, “Smaller players in banking, insurance and wealth will not afford the necessary investments in technology (and won’t have the necessary expertise either) and consolidation will pick up pace. Either through M&A or via tech platforms providing the necessary infrastructure but capturing a lot of the value and dilute the power of the associated users (advisors, etc).”
Robinhood hit an $11.6bn valuation earlier this year after closing a total of $660m in Series G funding. Deals like this show how big the opportunity in the market is, but as more companies like Robinhood reach such heights, there could be less capital being made available for the smaller startups.
Nucoro head of strategy and partnerships Nikolai Hack said, “Innovation laggards will continue to be weeded out and more profitable firms and especially conglomerates/groups should start to form. This should lead to enough scale at some firms to finally take some serious steps in terms of digital technology investments (platforms, user experiences, etc.) and become more financially healthy and profitable in the process.” As this continues, the gaps between profitable firms and laggards will begin to widen sharply and Hack believes firms need to embrace technology in all functions to be among the successful.
Entrants from outside the industry core
With technology becoming a lot easier to integrate new services, it is likely companies will look to enter new verticals. This is something we have seen with other FinTechs. Revolut initially started out as a travel card company offering cheap exchange rates; however, as it has grown in size it has expanded its offerings to become a digital bank. A number of other FinTech companies have done similar things and this is a trend that could continue.
Nucoro’s Nikolai Hack believes that new propositions of wealth and investment management will be built by players not originally set up was wealth managers or advisory firms. This could be from insurers, banks or other technology companies.
He said, “ By using technology as the foundation to manage middle- and back-office workflows, wealth management becomes more commoditised and will form part of more wholistic money management propositions. The differentiator will be the channels and existing distribution networks you can access (huge for the tech players / still very big for many banks and insurers) and the ability to capitalise on seamless UX/UI.”
Product centric approaches will lose further ground
Another trend that could take shape in 2020 is the drop of product centric approaches. These are the type of companies that focus the scope and depth of their products or portfolio management approaches in the value proposition. Nucoro’s Hack believes these companies will continue to lose clients with consumers being more eager to engage with firms creating client centric offerings.
As consumers expectations change and the drive for personalised services increases, people will gravitate towards firms offering such products. A firm will be better to focus on specific audience motivations, such as thematic investing, and capturing clients at crucial life stages. If someone is getting near the age where they might be thinking about marriage or buying a house, supplying them with advice and guidance to financially prepare for such events.
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