Dominance of retail investors, accelerated digitalisation – 2021 in WealthTech

For many companies, 2021 was the year to get back on track. Last year, the Covid-19 sent ripples across the financial market and companies were forced to enter survival mode, but this year saw more relaxed measures and a chance to push for growth once again. But was this the case?

WealthTech was one of the fortunate sectors that were well placed to come out of the Covid-19 pandemic stronger. As lockdowns forced people to move online, being a technology sector was a perfect scenario. Whether it was people looking to leverage a digital investment app like Robinhood to invest into stocks or a traditional wealth management firm seeking software to digitise their offerings, WealthTech companies were there for the wave of opportunities.

This need for digital services has not stopped and has continued through 2021. It comes as no surprise the global WealthTech sector has recorded record funding levels this year. In just the first three quarters of 2020, a colossal $20.9bn has been deployed across 466 transactions. This represents more than double the capital raised in the whole of 2020, where $9.2bn was invested through 434 deals.

The move to digital services is not new, but the pandemic has accelerated the shift immensely. Fredrik Daveus, CEO of Financial analytics API developer Kidbrooke said, “We were always working and hoping for this but when it happened it developed faster than we thought. The need for consistent financial guidance and advice across channels began to be widely recognised by industry thought leaders/panelists at events etc.”

The WealthTech sector has clearly boomed this year, but Alex Barr, Head of Business Development at Currencycloud, believes the biggest winners of the year were the retail investors. These apps have had a surge of popularity and there are no signs this will slow down soon.

Robinhood is one of the biggest names in retail trading and 2021 has been a mixed bag for it. The company is responsible for two of the biggest funding rounds this year, raising a combined total of $3.4bn. The company also held its IPO in August, where it closed the first day of trading at a valuation of $32bn, making it one of the biggest IPOs of 2021. However, the launch saw its shares drop by 8.4% on its debut, which is the highest drop of the 51 companies to raise similar IPO amounts. The WealthTech company also had a rocky start to the year during the GameStop saga, when it temporarily stopped people from buying stocks in companies like GameStop, and incurred the wrath of consumers.

Robinhood is just one of many retail investment platforms that are becoming popular among retailers due to their ability to personalise wealth management. But 2021 has seen the rise of a specific type of investment service, those aimed at ESG. Barr said, “We’re seeing a rise in the number of WealthTech startups that have a more impact-investing focused mission. I believe there’s a massive demand for this, especially among Millennial and GenZ investors. Aside from generating returns, consumers value the impact that their investments have.”

One that Barr has been interested in is Tulipshare. The company, which recently closed a $10.8m funding round, stylises itself as an activist investment platform that leverages shareholder rights to make changes in some of the biggest companies in the world. For example, it has campaigns getting Coca-Cola to move to 100% recycled bottles and get Apple to change its repair services protocols. Tulipshare achieves this by getting its customers to buy shares in an offending company and once they have enough shareholder power, they launch a shareholder proposal. There are a handful of similar WealthTech companies coming to the market that have services focused on these certain user demographics.

Whether it is the ESG-focused or general retail investors, there is a lot of competition coming to the market. Barr added, “These new entrants have come into the market with great user experiences and/or extra features that are not offered by incumbents. I foresee a big battle ahead for market share in the neo-broker space.”

However, one of the most surprising trends Barr noticed this year, was the success of WealthTech companies with crowdfunding campaigns. “We saw some of the quickest raises ever on Crowdcube this year with Freetrade raising more than £8m in less than six hours. Then there’s Plum, Emma, Clim8 and CIRCA5000 raising HUGE amounts in short spaces of time. Furthermore, this is being used as a brilliant advertising tool to attract many users to the platforms, even if they are not putting money into the crowd raise.”

But it is not just retail investing apps that have enjoyed a good year in 2021. Currencycloud, which offers international payment solutions and infrastructure to banks, FinTechs and brokers, was among the companies to have a strong year in 2021. Some of its notable achievements this year include attracting 150 new clients, growing its team to almost 450 and expanding into the APAC region, including an office in Singapore.

Barr said, “It’s been a year of huge changes, but we remain close to our customers and the wider industry: they continue to tell us how much they value our expertise and what we deliver to their business, and likewise we are constantly inspired by their innovations and ideas.” The company is continuing to put an emphasis on the WealthTech sector and is making strides in being the partner of choice for all WealthTechs globally.

Similarly, Kidbrooke has had a great year in 2021, making several partnerships and capitalising on new opportunities. Daveus said, “Great development with new partners where we really begin to see the power of the ecosystem approach. Also, a lot of confirmation from customers and prospects that our API-only strategy is appreciated. Enterprise institutions have many channels and lines of businesses and hence a lot of systems where our analytics is needed. That’s why they prefer a pure API without having to own and maintain yet another system.”

Copyright © 2021 FinTech Global

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