Fintech companies prove Gates’ point: Banking is necessary, banks are not

AUTOMATED teller machines (ATMs) made a debut more than five decades ago. They didn’t make bank tellers redundant, but significantly reduced the number of times a customer met with a bank teller.

In 1994, Microsoft Founder Bill Gates made the statement: “Banking is necessary, banks are not” — and innovations in the banking and financial services space since the arrival of the ATM have proved that Gates was right.

Today, one of the most exciting innovations is the automated investment engine, better known as the “robo-advisor”, which has provided retail investors with access to personalized advice, in a transparent manner.

Given the success of robo-advisors since their initial launch in the late 2000’s, it seems as though banks definitely need to think long and hard about the value they provide, at least to retail customers.

To better understand how technology is enabling new-age, digital-first and digital-only companies bet against banks and win customers over, Tech Wire Asia spoke to StashAway Malaysia Country Manager Wai Ken Wong.

“Tomorrow, a person could go through life not having to meet a financial planner, insurance agent or banker, as everyday banking, investments, and insurance are digitized.”

According to Wong, robo-advisory platforms like StashAway are gaining mass attention because they make life better — for customers as well as regulators.

“Technology provides an exciting opportunity for regulators to efficiently protect more and more investors while at the same time allowing for the industry to innovate.

As e-KYC technology matures, for example, robo-advisors will be able to effectively screen customers so that regulators can ensure compliance with anti-money laundering (AML) and counter-terrorism financing laws.

Technology also enables robo-advisory platforms — and regulators, by extension — to monitor customer’s flow of funds to detect any form of suspicious transactions.

For investors, on the other hand, technology brings more than just access to intelligent investment services via convenient platforms.

“The added benefits of entrusting your money with a robo-advisor means you have to pay much less, than you otherwise would if you used a traditional investment vehicle/solution.”

StashAway, for example, only charges up to 0.8 percent per annum in fees, and keeps transaction costs like foreign exchange conversion and ETF expense ratios to minimal levels.

Compared to a traditional unit trust product, customers can save up to five percent in fees per annum, which directly translate into returns.

“A two percent saving in fees over 30 years increases your overall return by approximately 50 percent due to compound interest.”

Truth be told, however, customers are smart — which is why Wong believes that the increased diversity in asset classes being offered to investors and the digitization of the industry will lead to integration or re-bundling of financial services in 2020.

Big or traditional banks might not really be headed to the grave, but the competition is definitely getting stiffer and customers are demanding smarter, more convenient, and more transparent products and services.

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