FinTech Social: Like It or Get Left Behind!
Financial Services companies, particularly large financial institutions such as banks and broker-dealers (BDs), have traditionally been extremely cautious as new technologies and services were introduced into their space. This can be traced back decades to something as unbelievable to accept today as the adoption of the computer, versus hand calculated or hand written work. What if the computer died and lost all that information?
In more recent times, say around the mid-’90s, into the first decade of the new millennium, you can point to using email, first within the company, then as a way to communicate outside of the company with clients. The ability for any employee of a bank or BD to send something outside of the company electronically was a very scary thing (going back further companies had the same concern with the fax machine).
There was the Internet, which originally came with major restrictions within the workplace, with only “essential personnel” having access and most sites restricted. At the same time this was happening, innovative companies such as Charles Schwab, Scottrade, Ameritrade, and others, were changing the way brokers and their clients were doing business, allowing account openings and trading over the Internet, while your traditional companies were initially very cautious in adding those types of services (for a lot of reasons). For the Millennials reading this, it wasn’t that long ago that you couldn’t go to any BD or Bank website, open an account, and start trading on it. Most adopted those services long after other innovators that you know as staples today, built their companies and reputations on them.
Then came Software-as-a-Service (SaaS). SaaS, which grew from the original Application Service Provider (ASP) model, made its debut into Financial Services companies around the early to mid-2000s. I witnessed the emergence of SaaS in the FinTech sector first hand. While SaaS and cloud supported hosting of applications are now becoming more and more embraced by financial institution clients, to this day you still have a handful of broker-dealers and banks that will not allow third party SaaS providers to host their client information. The best a SaaS company can do in these cases (if they want the business), is to do an “on premise solution”, which requires the hardware that hosts the application to be within the client’s data center rather than the SaaS provider’s data center or cloud.
The reluctance of banks and broker-dealers to adopt these new technologies and services – computers, fax, email, Internet, SaaS, and the Cloud – is understandable. As most know, these companies are highly regulated and even more are entrusted with personal and financial data of their investor clients. They can’t just jump into these new hot things without doing their due diligence, and rarely does any one of them want to be the first. Typically they want to let the other guy test the waters and shake out the issues before embracing it themselves. A trusted partner is critical to help these FinTech clients move forward.
That brings us to what I think is the next evolution within FinTech and what the clients who consume FinTech (banks and BDs) will be challenged with embracing next – FinTech Social – the bringing together of the functionality offered by FinTech SaaS solutions with the collective real-time information we’ve all come to make part of our lives within social media.
The Investors who are the clients of these banks and BDs no longer want to just compare their investment performance to that of the S&P 500, or understand the risk of their investments against Beta. A 35 year-old male investor wants to know what the other 35 year-old male investors within the BD are investing in and how they are performing. Thinking ahead, he wants to run comparisons against the actual 40, 45 and 50 year old investors as well. This “crowdsourcing” capability can be very powerful and validating, maybe even more than simply understanding how the assets for which the investor and his advisor chose to invest in are performing against a benchmark. Understanding how collective peers are doing and what they are choosing to invest in may end up being more important and easier to understand than most other “traditional” ways to validate how an investor and their investments are performing.
Like all other new technologies and services introduced into the financial services space, FinTech Social understandably needs to be vetted and adopted in a secure manner that complies with all of the regulatory and security measures for which a financial institution is bound. However, the social world moves fast. It’s one of the things that make it so attractive to users. They want and get their information quickly.
The financial institutions that have FinTech Social opportunities in front of them need to move equally as fast in their due diligence, otherwise they’ll look to today’s investor as one still deciding if placing fax machines in the office is a good idea, instead of the company leading the way in what is going to be an inevitable part of the future of FinTech.
If these companies don’t Like it and embrace it sooner than later, the investors will move to the innovators who already have it in place, leaving the others behind.
First published at LinkedIn
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