We imagine that someone coined the term ‘fintech’ because the rather more ponderous ‘financial technology’ wasn’t setting the world on fire. Though a little late to the party, the world of finance is accelerating its adoption of technology-based solutions to age-old problems.
Last June I wrote an overview of fintech. Let’s now explore things in a bit more detail.
Which businesses are gaining traction through financial technology?
The world’s finance systems are antiquated, but in a way this is not a surprise. As finance drove society’s development in the twentieth century, the standards and systems underpinning it all were in place well before technology came into play in such a paradigm-shifting way. Such ingrained legacy systems make investments in their replacements difficult to stomach.
The main foot-draggers are the banks. As they refresh their branches and internet offerings, the systems behind it all remain unchanged. Take cheques as just one example: it still takes four working days for them to clear!
As consumers we expect better, and there is no shortage of start-ups looking to satiate our need for tech-driven improvement. In general, banks will be slower to catch up (though a number of challenger banks are rearing their heads), but elsewhere solutions abound.
No article on fintech is complete without a nod to blockchain. The technology behind cryptocurrency bitcoin is touted as a solution to a host of financial issues. I’ve offered a brief explainer here, but it’s enough now for us to remember that traditional databases store information in one place, making this location susceptible to attack. Blockchains, on the other hand, store information history in many different places. To successfully hack a blockchain, all databases in all locations (which could be in the millions) would need to be hacked simultaneously.
Of course you don’t have to apply blockchains to be a fintech company. Instead we can simply think of them as any business using technology to change the way that our finances are managed.
Nutmeg and Moneyfarm
These are both investment management services, and they woo customers with their online interface and simple-to-use tools, including smartphone apps, for a more transparent and less costly service.
They certainly represent an easier way to manage investments than more traditional approaches. Open the app and a real-time picture of your entire portfolio is right there. The trade-off is greatly reduced levels of personal service, of course, compared to access to your own advisor. It will work for some and not for others.
This online offering aims to get our retirement plans in order. Once again, it is built around a website and phone app that provides clarity on your pension’s value and its likely worth when you reach retirement age.
After details of your pensions and previous employers are input, the system brings all of your pensions under one roof while offering a choice of plans and the flexibility to add new contributions. It results in a nifty view of how rewarding your retirement may be.
Working in the blockchain space, SETL has designed their own distributed ledger with the capacity to process billions of transactions a day. This is enough to keep up with Visa and Mastercard.
The benefits are threefold: instant settlement for the retailer, drastically reduced charges, and point-to-point encryption which combats the data leaks that have left big companies reeling in the last few years.
And now for something a little different: an outsourced solution for employee benefits. Many firms offer gym memberships and health insurance, but Perkbox wants businesses to take this a step further with over two hundred rewards, ranging from a free coffee every month and discounted cinema tickets to phone insurance and dental care. It sets management up with the means to award additional perks when the time is right. Like our examples above, in this instance online offerings and apps feature heavily in its transparent and easy-to-use service.
What is the takeaway here? The way I see it there are two things to think about:
- Technology’s pace and impact on every area of our life is a given. It is important to embrace it to avoid being left behind and leaving competitors who invest to attract all the new business.
- A traditional financial advisor or insurance broker will struggle to reach parts of the population, and services like these lend themselves well to that audience. There will still be a large market, however, for high-quality personal service. Being a solely transactional business just isn’t going to cut it anymore.
A differentiating factor is still crucial, and whether that be technology or people or a combination is up to each business to decide. But standing still may start to feel like moving backwards.
At Menzies we use the latest technology to support our clients, from simple apps that save time managing your employee expenses to collaborative software that gives us a window on the growth of your business. Nevertheless we strongly believe that the personal touch is key to understanding how our clients’ businesses really work.
This combination of technology and relationships can ensure that when there is something we can do to help you or your business, you will hear about it. That is #BrighterThinking.