To acquire new younger customers Legal & General’s investment division is focusing on mobile-first and trying to engage as early in the life-cycle as possible, according to the company head of distribution strategy, personal investing Janine Menasakanian.
Legal & General has around 9.5 million customers as a group; however, as its personal investment division is relatively new it is only a smaller segment. The majority of its current customers, in the investing division, are around the 50+ age-range, and are fairly financially sophisticated and still happy to utilise technology. Naturally, the firm is looking to acquire a younger group of customers to build up its pipeline, and this is where partnerships with WealthTechs is helping, Menasakanian said.
There are two age groups which Legal & General currently has its sights on. The first are those in their early 20s, which are potentially starting their career, or thinking to the future and buying a house. So they all have short-term goals, she said. The next age group are the ‘ambitious professionals’, so people around their early 30s.
Gaining new customers can be tricky especially with investing as it relies on consumers handing over a substantial amount of data and so their needs to be trust in the firm. Legal & General does not have too many issues with onboarding existing customers within the group, or older generations, as they recognise the brand. They may have previously bought insurance from them and so have a level of faith, she said.
“The new ones though, that really is an acquire space because we haven’t got much of a relationship. As for brand recognition, they don’t recognise it as much. While they may have seen the umbrella before, they don’t really recognise us as a personal investing offering. So, the strategy we have with that acquire segment is quite distinct, its mobile-first. We want to be anywhere they might be, so we’re almost tracking how they might become consumers of financial products,” Janine Menasakanian said.
In order to penetrate the market, Legal & General is looking to use technology to increase the interaction points with customers. The company is tracking every item at the beginning of consumers financial lifecycle, monitoring where they start their journey, how do they educate themselves financially, where do they bank, what are their preferences, in what manner do they want to view their financial status. By doing this, it hopes to boost its brand to new customers and as early as possible. A critical area for the group is the recognition that their investment services may only be a minuet part of the consumer’s end-to-end journey, according to Menasakanian.
She said, “What we want to do from a partnership perspective is be where our clients are. It’ll be different for each off those segments, but we’re seeking out partners who are aligned with some of our existing customer-base but those we’re also looking to going out and seek. We will partner with them to either help enhance their offering or for them to come into our marketspace to offer their products to enhance our offering.”
Global WealthTech investments has been on a four-year rise, with 2017 seeing a total of $2.6bn deployed in the space, according to data by FinTech Global. Funding has been increasing YoY at a stable rate, having risen from $928.6m in 2014. While there has been a steady increase, 2018 looks set to have a sharper rise in funding, with the year already seeing $817m more deployed in the space. This equates to a 30 per cent increase compared to the whole of 2017, with one quarter still left. In line with the higher distribution of investments, the size of deals has also grown.
Deals valued under less than $1m represented 38.7 per cent of total WealthTech deals in 2014, and fell to just 20.9 per cent in 2017. Over the first three-quarters of 2018, this has fallen yet further to just 7.7 per cent of total transactions. There have been some high value deals to close in the space this year, including the $150m Series E of investing and trading marketplace eToro and the $120m Series D round of China-based digital investment platform Snowball Finance.
As the space has grown in interest to investors, a number of financial institutions have also upped their appetite for WealthTech solutions. Firms have been building in-house, and acquiring platforms, but the open banking initiative under PSD2 has encouraged a lot more partnerships between the two.
Retail investing and robo-advisory are two of the areas pulling in a lot of interest. Earlier in the month, Santander launched its in-built Digital Investment Adviser, which is a new robo-advisor designed to educate consumers and help them make their own investment decisions. Whereas, the State Bank of Mauritius decided to partner with FinTech solution developer Miles Software to improve its investing capabilities. Through the deal, Miles’ wealth and asset management service MoneyWare, will be deployed through the bank.
Open Banking
Legacy system issues of financial institutions highlight the real need of integrating new services and WealthTech solutions. In a catch 22, the systems themselves make it hard to adopt these solutions they need. However, they are slowly improving systems and integrating new solutions through open banking. One of the biggest benefits its bringing with it is the greater access to data.
“The primary benefit is it will allow consumers to permission their data to be available on a needs basis. This will give them an aggregated view of their financial status and what they choose to do with that is up to them. If you take it further, then you’ve got the capabilities to look at that data to switch and redirect. So, it may be easier for organisations to say to them, currently you’re saving in a deposit account which gives you 0.5% interest rate but there are other accounts which could give you more preferential interest rates.”
This does have the potential to increase competition as there is huge apathy, Menasakanian said. Previously it was quite difficult to switch bank account and so people stayed put, but as the space evolves it becomes easier and easier. People can gain a better view of their finances and better alternatives, which will lead to “companies being more aware they can’t rest on the laurels.”
Trust is a major barrier point for financial institutions, especially in the investing division, and open banking is just adding to the pile. With data being more widely shared, it is going to cause more concern from consumers about what institutions know about them and the sheer scale of it. Not just this, but while some consumers are happy to give information to some companies, they might not be as happy for other enterprises to know, potentially sensitive information about them.
“In the next five years, we will just start to see the benefits [of open banking]. I don’t think it is quite going to happen quite as quickly as people say it will. I think the technology is there, the adoption isn’t. But also, there is a fair amount we need to do to ensure individuals trust this. People worry about where their data is going to end up, they worry about cyberattacks and they worry they are going to make themselves more prone to it.”
Having a recognised brand like Legal & General helps to ease the trust issues, as consumers are aware of them and their reputation. For them, it’s more about just making things clear for consumers and ensuring that everything is transparent. Menasakanian believes that it is imperative the group is upfront with consumers on what they will use the data for. For example, when signing the terms & conditions, consumers need to know what everything is and how it impacts them, if not, when something impacts them later, it could be detrimental to the trust in the brand.
By being more up-front with consumers and letting them know where their data is being used, but individuals need to give permission for their data to be more widely used and passed around. This is going to help accelerate the space.
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