Fintech and value creation

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Technology is becoming central to the delivery of financial services. The potential benefits of Fintech are well documented, with more than a third of financial services firms having already seen a 2-5% increase in revenue from automation, with major contributing factors being quicker time-to-market and better cross-selling.

While private equity is typically painted as being behind the curve in regards to technological innovation, the Augentius 2018 Technology Survey reported 55% of PE firms are looking to make internal investments into company infrastructure a priority in 2019, which suggests this image might be changing. While the data management, cloud solutions and cybersecurity are the largest Fintech areas of investment within company infrastructure, other technologies such as Artificial Intelligence (AI), machine learning and robotic process automation (RPA) are also key areas. 51% of the firms surveyed believe this technology holds the potential to change the way they operate in the future.

RPA and AI are often discussed as ways to revolutionise the way firms are run from the back-end, automating processes that have historically been labour intensive and streamlining clunky legacy IT systems. These benefits have a clear impact internally, but also offer the opportunity to develop newer products.

One of the first steps to implementing new technologies for external or internal purposes, is setting out a vision and identifying a clear business case for undertaking the transition. From there, it’s natural to enhance the power of value creation with Fintech.

Downing LLP have used their investment into technology to create the Downing Bond Platform, which provides investors the opportunity to directly benefit from the efficiency gains.

Ceri Williams, Head of Digital Distribution at Downing says,

Financial advice is becoming more readily available. As well as financial advisors, information can be gathered from other sources; the internet, as one example. Businesses need to look at different audiences and adapt their messaging. This makes a direct to consumer product beneficial”.

If we look in twenty years times, and you’re only targeting IFA’s and wealth managers as your audience then you’re going to struggle. My daughter, currently 10 years old, is more likely to put the question into Google or whichever the equivalent is. I can’t see her necessarily ringing someone off the high street! Those days are numbered and while they’re not necessarily dead, as a business you have to react to that”.

The Downing Bond Platform is an example of a new product born from the efficiencies created through the introduction of technology. By allowing investors to approach directly, Downing allows investors to potentially gain higher returns off typically lower-yielding investments.

 “Technology has made products that were historically only available to the professional/institutional investor, more directly accessible for consumers”.

The Bond platform offers an investment product that is conservatively underwritten and offers bank beating returns against fixed assets”.

Downing’s move towards innovative technologies in creating efficiencies internally and externally is a meaningful step towards tech enablement.

Yet, introducing technology into businesses, despite the long-term benefits, often faces resistance. The most prominent barriers to Fintech innovation are frequently the transition from legacy systems, lack of internal leadership and finding the right business case to promote technological innovation.

For the successful implementation of Fintech, this requires a clear vision and strong internal champions to push the technology through. While the transition process is almost certainly to be a painful one, the result can create new opportunities.

Currently businesses within the financial services have the luxury to choose the timeline at which they invest into innovative technologies. However, they may find soon that it becomes a necessity to implement these technologies to stay competitive. The real choice may be between undertaking the struggle now to reap the benefits of innovating early or postponing the transition before changing in a last-ditch attempt to stay afloat.

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