Instead of that, let’s talk about financial technology – or fintech – more generally. London, which is in England, which is a country that got knocked out in the group stages of the 2015 Rugby World Cup, is becoming fast known as a world hub for fintech startups and incubators. Venture capitalists are pouring squillions into companies armed with nothing more than an ironic Atari T-shirt, a record bag and a tricked-out MacBook Pro. Headlines include ‘14 Reasons Why London Fintech Rocks!’, ‘Got A London Fintech App? Have Some Money!’ and ‘No, We Don’t Understand It Either’.
There is a huge amount of heat in this market, which naturally sounds alarm bells. Headlines include ‘Is London’s Fintech Bubble About To Burst?’, ‘Look Out London, The Fintech Bubble Is About To Burst!’ and ’14 Reasons Why The Fintech Bubble Must Burst Soon!’
Interestingly, dynamic thermic transfer between a heat source and a liquid can cause bubbles, so if we think of the fintech market as a liquid, and heat as heat, then this could totally happen. That, people, is science.
Whenever you see clusters of activity like this in the new digital economy, it is a fair bet that those canny MBA-toting entrepreneurs have spotted a market which has grown fat, is serving its customers poorly and is ripe for the plucking. Sound like any markets we know?
Alternatives
Interestingly though, the top 10 investments in fintech haven’t been aimed at long-term savings and investments or protection at all. Of the £357m invested so far in these companies:
•£10m went to Seedrs, the crowdfunding platform backed by Neil Woodford
•£135m went to peer-to-peer lending
•£126m went to money transfer companies including TransferWise
•£12.2m went to an online pawnbroker, £12.9m to a small business lender, and £12.9m to a credit rating platform.
Investment firms, platforms, adviser-focused robos (sorry), and so on, featured not at all. Although it is only fair to mention that, if we had been doing this last year, Nutmeg would have featured with a £24m funding round.
What can we learn from this? Private equity groups, angel funders and venture capitalists are not known for emotional attachment, and our sector of advice and long-term savings and investments is full of emotion. Money pours into those markets where the venture capitalists believe that there is not only potential for disruption, but good profits to be made. Taking tiny slivers of savings and accepting whopping regulatory costs is not any part of that world.
There is no doubt that there are opportunities to improve profitability in many of the heavy technology-based companies in our sector; that’s something that I would expect to see private equity firms getting involved in. Get in, give it a kicking, streamline, and try to achieve 100 per cent return in 3 years. That’s the game – and it will be interesting to see if there is any private equity involvement in any of the ‘up for sale’ rumours in the platform sector.
All of this stuff is happening in a rarefied kind of atmosphere, which is a world away from the day-to-day business of seeing clients and helping them achieve their goals. So should advisers really take any notice – beyond any personal geeky interest?
I think there are potential benefits to so doing. One of the things that happens in a tech/venture capital bubble is that sometimes quite small elements of the various companies and propositions may find an application. It is not uncommon for a company which has been through a couple of rounds of funding to then be snaffled by a big beast, not for the service they offer, but for one part of the intellectual capital they’ve developed.
If advisers are trying to work in genuine partnership with their tech suppliers – be they platforms, CRM systems, back office engines or whatever – then the process of healthy challenge is crucial to making sure the propositions you use reflect what it is you actually want. I have run lots of development sessions for platforms in particular and in many cases the needs advisers express are around things like ‘it’s a bit clunky’ and ‘could you make it better?’
Transferring feedback
Any feedback is good, but if you watch and try out systems like Transferwise, Seedrs, eToro and yes, even Nutmeg, you can get a sense of what might be possible with the kit that you use. And that’s a great position to be in. Not to mention that it’s highly likely some of your clients – or members of their families – will be using them too. How nice, if a client is talking about wiring money to an errant child overseas on a gap year, to be able to show them new services which radically cut the cost of money transfer.
While we are all getting excited about fintech startups under a roundabout in London, the world carries on regardless, and those of you who like hardware may have noticed that Microsoft has now completed its transformation into Apple with its big launch event recently. Redmond is getting a lot of things right at the moment, and some of the upcoming hardware looks genuinely attractive and exciting.
Usage of Apple kit has always been sporadic with advisers; normally because a) it’s really expensive and b) it doesn’t play nicely with a lot of the systems advisers use. The Microsoft kit unveiled recently does not address the first point, but certainly helps with the second.
The Surface Pro 4 looks to be a remarkable machine for business. It is not cheap – a mid-range one with enough storage will probably set you back £1k or so – but it runs Windows and Office properly, has a nice keyboard (sold separately) and a Surface Pen which users of the Pro 3 tell me is revolutionary in day-to-day use. This has clear applications for usage in front of clients, where you can highlight important information on the fly without the need to dig out your hairy old bashed-up laptop and load up documents, turn the clamshell round and hope they haven’t gone off to the loo by that point.
If your pockets are a little deeper, the Surface Book also looks to be a great potential machine to use out and about – like several other units such as Lenovo’s IdeaPadMiix, it’s a hybrid tablet and laptop. One machine to rule them all? Perhaps.
Again, as with all new stuff, what happens in the real world doesn’t necessarily match what expectations are. And it’s hard to know how customers will react to any part of a new experience. But it’s a time of excitement; a time of renewal, and a great time for advisers to readdress how they use technology on both a hardware and software basis.
Whether you should hire robots? That’s another issue entirely.
Mark Polson is principal of platform and specialist consultancy the lang cat
