The financial sector has thrived for decades by managing investors’ portfolios for them, but this also led to restricted access to information and assets. The lack of access deterred huge numbers of people from managing their own investments, right up to the present day. It effectively formed the basis for a type of financial exclusion – those with the most money could benefit from the best deals, but those with less to invest either got scraps or weren’t offered investment opportunities at all.
The last few years have seen a surge of new business models harnessing online technology to deliver financial services at lower costs, with greater control for investors. So what sustainable difference can FinTech make?
Technology promises huge improvements in customer experience and potentially game-changing cost reductions. But I’d argue that if FinTech becomes defined as only being about the benefits of re-wiring, then we will have missed an opportunity to achieve an even bigger prize, which is increased access.
A key thing the internet has facilitated is simultaneous real-time dissemination of information to a mass audience. This overcomes one of the previous big obstacles to direct investor access. It opens up the wider question of how financial innovation can be combined with technology to deliver greater value to investors by changing the way they understand and use financial services. This is ambitious and difficult to achieve, but I’d argue that we can embrace this challenge by using advances in technology to bring lasting change to financial access.
Look at the asset class of loans where, traditionally, the individual investor deposited money with banks who would then fund loans: direct access was impossible and returns were siphoned off by the banks. This has now been opened up by FinTech, so that investors can now directly fund loans and enjoy for themselves the risk and reward that entails. We’ve also achieved a step change in transparency, with investors empowered to make investment decisions on the basis of freely available, detailed, real-time data – signalling an end to the exclusivity of financial information which has stubbornly remained as the norm in banking. With better information available, everyday investors can make more informed decisions about risk and reward.
And the bigger picture is that we have commenced a redefinition of some fundamental parameters in finance. As more and more investors realise that the concept of risk and return is not so inaccessible after all, it should become as normal to own loans as it is to own equities, and FinTech can start to make a positive impact that reaches beyond that of technological change alone.
FinTech can’t change the forces of risk and reward, but it can make the benefits directly available to more people, boosting access and financial inclusion as a result.
