OWIN18 conference report: Arrivederci to banks?

Italian FinTech Objectway recently invited hundreds of its international FS customers to Rome to hear about the wealth management industry’s progress towards a digital future. Graham Buck reports from the OWIN18 conference.

Why are there no banks or asset managers in Star Trek? Because it is set in the future.

The quip, made by FinTech adviser Spiros Margaris, set the tone for Objectway’s third international customer conference held this week at the imposing Villa Miani in the hills above Rome. The Italian company has become a major software provider of digital solutions for the global wealth management industry, and it invited 150 international customers to the Italian capital for presentations on the sector’s digital future.

Margaris, a keynote speaker at OWIN18, believes that bank branches still have a place in today’s business world, but FinTechs are inevitably carving an ever-bigger slice of wealth management, along with other financial service sectors. This makes the scenario of a bank-less future perfectly credible.

“If [the business] is profitable, a startup will think ‘we can do this better’. Not all of them will survive, but the most successful will over time develop into billion dollar-plus companies,” he suggested. “Customers’ expectations of their asset manager are growing in much the same way as the tech advances they now expect from the car they drive. Financial advisers are still important, but they can no longer afford to be average. Artificial intelligence will pick all of the low-hanging fruit.”

Margaris believes that despite their volatility and the controversy they have created, Bitcoin and other digital currencies “are here to stay”. Governments had “missed the boat” in attempting to regulate and they were already proving popular with younger consumers. He is also confident that blockchain will play a key role in the digital future although “it’s likely to be as controversial as Viagra” – like the wonder drug it is intended for a specific purpose, but could end up being used for something very different.

The digital future will be characterised by banks and other asset managers increasingly becoming more like utilities and collaborating with others, with those first to act winning the best deals. Margaris cited Amazon’s development into services such as payments, small business loans, cash deposits and member rewards as an example, along with Tesla providing car insurance for its customers.

More worrying for the traditional fee-charging firms are the disruptors that are willing to offer services for free, he added, such as the Robinhood app that enables investors to trade stocks without having to pay. In this new competitive environment, which will also see robo-advisers play an increasing role, “new kings will be made”.

However, existing financial service providers still have the advantage of their well-established brand, assets and clients. Margaris concluded that some will have the financial muscle to acquire their aggressive new competitors, such as BlackRock’s purchase of FinTech firm Cachematrix last June.

FinTech versus ToughTech

‘ToughTech’ – the heavy-duty technology used for safely moving money and securities and knowing exactly where they are at any given moment – is as essential as FinTech, suggested Geoff Towers, who is chief executive of US bank BNY Mellon’s Pershing unit. Pershing has provided these services to investment banks, broker-dealers, wealth managers and financial advisers for more than 30 years.

Towers believes that there is a gap between FinTech and ToughTech, which is worth attempting to bridge given the huge amount of money previously locked up by the big insurance companies now coming into the wealth management sector. “No less than £2.1 trillion in assets and savings is served by pension and retirement professionals,” he told the audience at OWIN18.

“That also means a huge market for advice. A poll asking people to identify what they expected to be the main source of funding for their retirement found that one in five really didn’t know. Ninety per cent of Millennials admitted they could only guess what the size of their pension pot will be.”

FinTech is fast to act, but in many cases can be regarded as short-lived and not always able to understand the implications of regulation, suggested Towers. It needs to come together with ToughTech to offset the latter’s weakness, which is its slowness in making decisions, implementing them and in changing.

Pershing is attempting to unite the two through its partnership with Objectway, announced last October, which brings together the group’s global custodian and outsourcing solutions with the Italian company’s front-office solutions to create a single integrated straight through process. The partnership saw the launch of Pershing Nexus Wealth, a professional portal that includes digital client management and Pershing Nexus Investor, an investor portal.

FStech asked Towers which FinTech initiatives he regards as most potentially transformative. “BNY Mellon is certainly looking at blockchain and recognises its value – which is probably every bit as important to the value chain as cyber,” he said.

“But good asset management is about watching change and knowing when to change your focus. The most successful managers read as widely as possible, which enhances their chance of finding something surprising – something that no-one else is thinking about, which can form the basis of contrarian investing.”

FinTech is still very much based on algorithms, but technology that goes beyond that to recognise history rarely evolves in the way that people expect could be truly transformational, he added.

Resisters, transformers and players

Also a keynote speaker at OWIN18 was Thomas Zink, associate research director at market intelligence firm IDC, who described its remit as helping firms to identify both technology trends likely to disrupt their business and opportunities for them to move up to the next level.

IDC’s analysis of European firms suggests that just over one in five (21 per cent) are ‘digital resisters’, either because they lack the necessary budget or their leaders are not pushing for them to transform. More numerous (26 per cent) are ‘digital explorers’, which have embarked on digital transformation but have got stuck as they typically still operate in silos. Digital players (29 per cent) have progressed a little further, but are hampered by silos, outdated key performance indicators or skill shortages. Of the remainder, 18 per cent are ‘digital transformers’ and just six per cent can be regarded as ‘disrupters’.

“Wealth around the world is increasing, but the wealth management industry is doing a fairly poor job of keeping up with the trend,” Zink suggested. This means that many aren’t addressing the different needs of new high net worth individuals, who typically are regular users of social media. “It’s increasingly difficult for wealth managers to be a part of the conversation and only the development of new platforms will help to keep them relevant,” he added.

However, looking ahead to the next 10 years Zink predicted the following milestones will be reached:

2019 – 60 per cent of organisations will have a digital leadership structure in place
2020 – Half of all tech spending will be data-related investment
2022 – 80 per cent of organisations’ revenue growth will be from digital offerings
2027 – 75 per cent of organisations will be ‘digitally transformed’.

IDC’s research also suggests that consumers are becoming more receptive to the concept of interacting with a machine. While only half believe that a robot can offer financial advice as good as that of a human adviser, Zink added that robo-advisory technology was only launched three years ago and there is “massive potential” for more consumers to become comfortable with it.

FStech asked Zink if the growing number of cyber attacks and the fact that more robust systems were having to keep abreast of increasingly sophisticated cyber criminals would threaten the digital future. “It’s not something that’s going to stop and it has developed into an arms race,” he agreed.

“However, machine learning does a great job in exposing anomalies and is getting smarter all the time. So that probably represents our best shot, although collaboration and threat intelligence need to happen faster. In the past we weren’t able to detect attacks early on, but there is now growing transparency and analysis of transaction history.”

Zink also said that he is impressed with progress being made in Asia towards a digital future. “In China, the banks were state enterprises and had little concern for the consumer until Alibaba came in and stirred up the market,” he explained. “In India, the banks were early adopters of application programming interfaces and worked closely with the system integrators. Singapore, which five or six years ago still had an overly restrictive regulator, has now changed to become innovative and forward-thinking.”

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