Robo-advice and payments are counterrevolutionary, but not fintech lending

By David Tuckwell on Thursday 22 June 2017

Alternative LendingSavings and Investment

New think tank report challenges assumption that robo-advice is disruptive

Silicon Valley think tank comes down hard on robo-advice and payments. But claims the effect of fintech lenders could be profound.

Robo-advice is the least revolutionary arm of fintech, with a conservative business model that only tweaks financial services by bringing software to investors rather than their advisors.

Worse: because it can easily be adopted by incumbents, robo may not just be un-revolutionary but actively counterrevolutionary, claims a new report by Silicon Valley think tank the Christensen Institute.

“Considering the function they provide, robo-advisors are more sustaining than disruptive. The process of investing has not changed; the current crop of robo-advisory solutions are built as an enabling interface on top of the existing methods of investing,” the report said.

“All they have done is automated the process of onboarding to make it easier for individuals to avail wealth management services.

“Because incumbents are motivated to adopt robo-advisor technology, entrants are facing steep competition. Thus, we see a fierce response from incumbents including Charles Schwab, Vanguard and Blackrock who have made significant gains against startups.”

Payments is put in the same boat, noting it requires close cooperation with powerful businesses who control important infrastructure. And cooperation means large chunks of fees collected from merchants must be shared.

The report reserves higher praise for the marketplace lending which, it claims, has enormous potential and could even undermine banking majors’ ability to set interest rates.

“Marketplace lending …[is] creating a situation with enormous implications for incumbent lending institutions,” it concluded.

“Many segments of the lending market are under attack… and several aspects of lending are likely to change in ways that are unfavorable to incumbents.”

“Should P2P lending gain significant adoption amongst borrowers and retail investors, it could serve as an alternative to bank-led lending in many situations, thereby reducing banks’ power to set interest rates.”

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