The AltFi team’s Digital Wealth predictions for 2021

By Oliver Smith on Tuesday 22 December 2020

FeaturesSavings and Investment

We took a look into our crystal ball to try and predict what might happen in digital wealth next year.

The AltFi team’s Digital Wealth predictions for 2021
Image source: Natalya Zaritskaya on Unsplash.

The biggest ‘change’ in the digital wealth this year hasn’t been with the industry itself, but rather the impact of Covid-19 on its customers.

Next year, however, the stark changes to our personal finances could start to reverberate through the industry, or maybe not.

In light of the complete unpredictability of 2021, the AltFi team has peered into our crystal ball and taken a gander at what we think next year might hold in store for digital wealth. 

 

Robinhood will buy Nutmeg

By Daniel Lanyon, Editor-in-Chief

The digital wealth space has been relatively uneventful compared with other fintech trends in recent years. Seemingly dozens of ‘Robo advisors’ launched within a few years from about 2015 onwards promising big things. That didn’t materialise, really, and the analogue wealth management world continues to enjoy good times.

In 2021, however, I think we will see some action. Thanks to 2020’s machinations a new generation of investors got around to putting their money to work in the markets, with US giant Robinhood the notable name to benefit. As exclusively revealed by AltFi, however, Robinhood pulled back from its planned launch into the UK. Probably a wise move, given the circumstances. Its massive cash pile and plans for a 2021 IPO though speaks of the potential for an acquisition hunt in the first half of 2021 to bolster its revenues to justify it’s eye-watering current $11.7bn valuation, rumoured to be up to $20bn in an IPO.

If it were keen for a second shot of the UK market—one of the most lucrative outside the US and Asia—Nutmeg seems a likely target. It’s the oldest, has the most customers and, thanks to many millions spent on ad money, has the best brand recognition according to the AltFi Digital Wealth State of the Market Report 2020

Also, thanks to that big spend on marketing, it has yet to break even after eight years of trading, having posted losses consecutively to the tune of £80m.

 

Digital wealth management enters the mainstream

By Aisling Finn, Junior Reporter

Despite the turbulence of 2020, many of us had more time to spend looking after our finances and, with the lockdown shutting branches up and down the country, we turned to digitally-native options.

I, for one, started using money management apps more frequently than ever before, with all my digital banking apps regularly appearing as some of the most frequently accessed apps in my iPhone’s analytics. 

In 2021, I predict that we will see digital wealth apps move into the mainstream, as more and more people turn away from the stuffy and often more expensive incumbents.

Looking back to look forward, at the beginning of the month AltFi published a report in collaboration with Opinium, taking a deep dive into the digital wealth space. It was discovered that, despite nearly a third (30 per cent) of those surveyed knowing about Nutmeg and a similar number knowing Moneybox, few people actually had accounts.

For 2021, I can see more and more people turning to digital wealth managers, just as they have with digital banks, as people begin to shop around for better rates if they haven’t already. 

I, for one, can’t see why anyone would want to keep their money in a savings account with just 0.01 per cent interest, with the threat of negative interests on the horizon, when fintechs are offering far more favourable rates. 

 

A major market departure

By Oliver Smith, Managing Editor

Apologies for ending our 2021 digital wealth predictions on a down note, but my colleagues’ valid points around the high customer acquisition costs and low conversion rates of today’s industry leaders I fear will conclude differently.

At the same time as these high costs, there’s also growing pressure from adjacent industries, share trading and digital banking in particular where the likes of Freetrade and Revolut are deploying ‘good-enough’ investment propositions at massive scale.

The result of which I predict will be added pressure on digital wealth margins. I’m particularly concerned with those currently boasting interest rates far out of line with the rest of the market—lest they heed the warnings of what’s happening in Australia.

Finally, with the exceptions of Nutmeg and PensionBee, I worry there are few current providers with the AUM to justify a takeover bid.

In conclusion, at least one of the major digital wealth providers will call time in 2021 and, unlike Daniel’s prediction, I don’t believe there’ll be a buyer in sight.

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