Financial services is one of the most highly regulated industries in the United States. The complexities of regulation create a dire need for automation, but also make it very difficult to develop and implement technology in a timely and compliant manner. This is especially apparent during the current pandemic where many physical offices are closed. Financial services companies that did not already have automated processes implemented may be struggling with the new work-from-home paradigm.
Luckily, many consumer-facing parts of the industry seem to have already overcome these hurdles and have cleared the way for the fintech market to address the need for people to manage their finances remotely. During the pandemic, registrations for fintech apps rose by 72%, according to a report by deVere Group. Additionally, time spent within those apps increased by 35%.
The coronavirus seems to be accelerating trends that were already in motion. This boom in use follows a banner year for the industry in 2019 where fintech was the fastest growing app category, with over 1 trillion logins. Banking and investment apps saw the largest growth, with 100% and 60% respectively.
While this paints a pretty picture for the industry as a whole, B2B technology for financial services is still lagging, and this poses a big problem. The rise in use of consumer facing apps means that investors are developing habits and expectations around what a financial services experience should look like. Wealth management firms have gradually increased their technology use over the past few years, but firms that don’t offer tech-enabled experiences for financial planning, customer relationship management, portfolio management and reporting, to list a few, may start to feel the strain as they lose a competitive edge to more digitally outfitted firms. And it’s not just losing clients that firms have to worry about. Just like investors, employees also value technology that makes their jobs easier.
Moving further up the funnel, asset managers who still rely on paper investment processes may find that their distribution is moving toward sponsors that offer electronic trade processing, which takes the administrative load off of the wealth managers and speeds up the process. This transition is beginning to take shape in the alternative investments industry, which still relies primarily on paper subscription documents that have to be mailed and faxed. These transactions have become increasingly difficult due to working restrictions during the pandemic and demand for electronic trade processing solutions has risen accordingly.
The silver lining to this new reliance on technology is that the simplified and accelerated process makes alternative investments easier to access access and subscribe to. Firms that deal heavily in alternatives will become more productive, freeing up capacity. If demand for alternative investments increases, as has happened before in asset classes, such as mutual funds, that have been technologically enabled, then the industry will be well equipped to expand rapidly.