Buy Side Lags on Fintech Adoption
Fintech adoption within investment management is still comparatively low as the industry faces falling margins, increased competition and a low rate environment.
Charlotte Wood, head of open innovation and fintech alliances at Schroder Investment Management, wrote about fintech adoption by the buy side in the latest review from AMIC, the asset management and investors council of the International Capital Market Association.
Wood said: “Fintech adoption within investment management is still comparatively low despite the opportunities it offers to leverage emerging technologies, gain early insights into potential disruption and explore ways to accelerate company strategy. “
She cited research last year by Alpha FMC which found that only 15% of asset managers said they were focused on fintech solutions, with many stating that they aim to “follow fast” in new technologies instead.
“This is in stark contrast to banking, where EY revealed that all 45 of the global banks analysed were working with fintech startups in one way or another,” Wood added.
Fintech is important as Wood wrote that asset management firms identified as digital leaders reported stronger financial performance than their peers in terms of growth, operations and technology costs, and profit margins (51% vs 30%) last year.
She continued that the lag by asset managers is understandable as there was initially little of relevance to the industry. However, in recent years fintechs have entered wealth management and developed services to help fund managers make better investment decisions, serve clients more effectively and comply with regulations.
“Our industry is under pressure to innovate, faced with falling margins and a difficult market environment. In addition, across general society there is a rapid pace of technological advancement, shifting demographics and the ever-present threat of new entrants to industries,” Wood added. “We believe that to respond to these demands, it is critical for asset managers to look externally for solutions as well as to their internal teams.”
Schroders launched Cobalt, its own in-residence programme last year, and took a minority stake in Qwil Messenger, the first fintech to join the scheme. Qwil Messenger allows clients to communicate quickly and securely with Schroders, in a similar way to using WhatsApp.
Wood wrote: “We select startups with relevant propositions, which need more work either in terms of the product or the company’s maturity (such as having various legal, procurement and HR policies and structures in place). The fintech is given access to our offices, and our teams work with them to accelerate to a commercial engagement.”
Schroders benefits from being able to influence the final product and learn from the startup’s culture, methods of working and skillsets.
The Investment Association, the body for fund managers in the UK, has been encouraging fintechs to work with the buy side by launching Velocity, an accelerator and innovation hub, last year.
Velocity opened applications for its third cohort of another five fintech firms last month.
A year since its official launch, we’ve seen more than 120 FinTechs join @IAVelocity.— The Investment Association (@InvAssoc) October 16, 2019
Now we’ve launched the hunt for the next #Velocity cohort.
For more details on how to apply, click here: https://t.co/xPvy7MbAFq https://t.co/Z5He11Lkuq
During the six month programme, fintech firms have access to the IA and industry expertise, exposure to industry networks and potential clients and mentoring from the 28-strong Velocity advisory panel.
IA expanded its fintech program this week when first eight firms joined Velocity Birmingham, a new state of the art fintech hub in the West Midlands with 5,000 square feet of co-working space.
It has officially been announced, Delta Financial Systems, @ExateTech, @FregnanAI, @gfaexchange, @METCloud_com, @moneyinfotech, @Silicon_Canal and VendEx Solutions will be joining our new state-of-the-art #VelocityBirmingham FinTech hub! pic.twitter.com/GEdzm1cMmZ— Engine (@IAEngine) November 27, 2019
Chris Cummings, chief executive of the Investment Association, said in a statement: “Birmingham has one of the UK’s largest tech clusters outside of London and a hub of professional and financial services, and through Velocity Birmingham investment managers can embrace the technologies of the future to the benefit of customers and the wider economy.”