FinTech and the Fledgling Investor

Given the breakneck rise of global FinTech - global investments reached $137.5bn in 2019, according to KPMG Pulse - there’s clearly a compelling case for personal investors to put their money in FinTech stocks.

But according to a new report from The AI Journal, the FinTechs themselves are using AI and machine learning to revolutionise personal investment management for individuals.

Rise of the robo-advisers

FinTechs have been disrupting wealth management and the adviser industry, enabling users to navigate the labyrinthine financial landscape.

In its crudest form, technology-enabled investment harks back to the advent of the internet, when online trading became an option. Today, it’s a far more sophisticated beast, and that’s largely thanks to the rise of the so-called robo-adviser.

Robo-advisers are digital platforms that automate financial planning using algorithms that require little to zero human interaction. After collecting information and requirements from a prospective investor, it uses that data to tailor an investment portfolio, then continuing to monitor and optimise it as the markets shift.

The main advantage of a robo-adviser is to cut out the human adviser, reducing labour cost and charging a flat fee. This means that investors of all levels can get on board. Where human advisers are generally not interested in investors with less than $100,000 in assets, robo-advisers can be deployed by someone with as little as $5,000. Robo-advisers also don’t need to lead a life outside work, so are able to service customers around the clock.

For the younger, greener consumer, there are various kinds of FinTech tools to help grow their money. For instance, Chip is an automated savings app that links to a user’s current account. It works out how much they can afford to save and then transfers that amount to a Chip savings account hosted by Barclays.

For beginners looking to dip their toe deeper into investments, one such provider is Betterment (the world’s first robo-adviser that was founded way back in 2008). It uses algorithms to recommend an investment portfolio and then automates the process. As a platform, it’s clearly designed to cut through the clutter via an intuitive and easy-to-use interface, educational resources, tax-loss harvesting, as well as checking and savings account options.

Then there are innovative companies such as PrimaryBid which can notify users when an alluring tech company goes public on the stock market, allowing them to access new share issues from European listed companies at the same discount as institutional investors get.

While older investors might place relatively less importance on sustainability, younger people are more driven by these ethical considerations.

Demand for automated FinTech is particularly pronounced among younger investors, with those under 40 preferring to do business with companies that use online collaboration and digital tools.

Social conscience

But there’s a burgeoning area within FinTech investment that is more pointedly designed for and targeted at younger, more ESG inclined investors. While older investors might place relatively less importance on sustainability, younger people are more driven by these ethical considerations.

Consequently, a growing number of FinTechs are creating apps that can help young investors of varying experience invest in sustainable companies, such as a web-based tool launched recently by UnifyImpact. It maps hundreds of millions of environmentally and socially responsible data points with climate action, human rights and public health to help its users coordinate their investments with their values.

Bristol-based Tumelo was founded on the premise of a socially conscious investment app that lets users select a portfolio aligned to their ethical priorities, from climate change to diversity and inclusion.

Even the established FinTechs are making inroads. The aforementioned Betterment announced in 2020 that it was adding to its socially responsible credentials, with climate impact and social impact portfolios.

Generation next

But while FinTechs continue to develop products for investors with at least a modicum of investment nous, there’s a growing segment that has become manifest in the FinTechs which are targeting children and teens with the likes of debit card and smart money apps.

According to data from Crunchbase, the past five years have seen investors plough $535m into 89 deals with FinTech startups that offer savings platforms for children, young people and parents.

Of that figure, $344m was raised in 2020, including Greenlight Financial, which advises parents on how to educate their children to save with its app and debit card products. The company achieved a valuation of $1.2bn after finalising a $215m Series C funding last September.

Looking ahead, clearly FinTech companies must sow the seeds for future generations of investors if they are to continue to reap the rewards. And that’s why many are going back to basics: teaching families and their children about the complexities of financial management.

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