You can hardly open a news website today without being bombarded by news covering Fintech & InvesTech topics, but why has this new trend within the industry become such a big deal? New technology disrupting industries is not unheard of, as the past two decades have been characterized by rapid technological innovation which has led to dramatically altered industry structures. Nowadays that technological wave has focused its attention on the financial services & investing segments, aiming to enhance the distribution and functionality of financial products & services available to clients, while simultaneously placing more power in the hands of investors and challenging bloated financial institutions to re-think their business models. Why is this a good thing?
Re-Thinking Industry Dynamics
If you look at other disruptive tech companies, such as Airbnb and Uber, they both arose out of a desire to fix a perceived problem within their respective industries. Airbnb saw an opportunity to provide people with a cheaper alternative to hotels, effectively eliminating the middle-man and allowing people to connect with each other to organize accommodations. Similarly, Uber arose out of discontempt with traditional taxi services and high-fares; once again using technology to empower consumers to connect with each other to arrange rideshares, again eliminating the middle-man. InvesTech is no different. Companies within this new, disruptive, sector are motivated to improve the quality of resources available to retail investors; empowering them through the implementation of new technological solutions.
Where does the need for InvesTech originate?
Large financial institutions, brokerages and investor resource providers have monopolized the financial services industry in the past, offering their relatively inflexible traditional services to retail investors in the same manner as has been done for decades. Nearing the end of the first decade of the 21st century, especially after 2008, it became clear that these large institutions prioritized profits over service-quality; which explained the surprising lack of investment in technological infrastructure by these companies to serve their enormous client bases. Therefore, as the second tech-boom took off in 2013 and the focus once again returned to disruptive technology. This time it was the financial sector which was targeted, after years of bloated inefficiency and information asymmetry. Start-ups clamoured to improve the current state of the financial services/investing segment, and the movement really began to pick-up momentum in 2014 and 2015. Globally, fast and agile InvesTech Start-ups began to disrupt the well-entrenched status-quo, which has been enjoyed by the bloated traditional financial service providers for many years.
How are new InvesTech companies beneficial to Investors?
For the longest time, the world of personal investing was daunting, characterized by confusing trading platforms and complex systems provided by large financial service providers as a 'one size fits all' solution for both retail and commercial clients. Similarly, before the age of InvesTech and information democratization, institutional investors were able to source and acquire powerful technology, which provided them with an unfair advantage over individual investors. Large financial institutions raced to purchase the fastest and most-efficient technology, monopolizing the benefits and 'allowing' individual investors to access it, provided they utilized their services. InvesTech is now changing the entire industry dynamic, so that an increasing amount of technological power is being put directly in the hands of consumers. No longer do investors have to deal directly with large financial institutions in order to access trading platforms, relevant and timely financial information, and charting software. New InvesTech firms are being established everyday to serve retail investors directly, which, for the first time ever, is putting substantial pressure on the bloated financial service providers to update their offerings, and to provide better investing solutions to their clients.
There are two core areas where InvesTech firms are causing the most disruption:
1. Financial News & Information
Perhaps some of the most noticeable contributions to the InvesTech realm have been in the form of Financial News & Information technology and services. Financial markets have become increasingly volatile since the advent of online information communication, as investors realize that corporate news releases have the potential to drive substantial share price movements based on investor behavioural traits. Recognizing this, InvesTech firms have popped up within the past two years, dedicated to bridging the technology gap between individual investors and the perpetual stream of financial news. Beyond just providing this information, some InvesTech firms are taking steps to provide integrated platforms for investors, allowing them to customize which information they receive, resulting in a portfolio-tailored stream of relevant news items.
CityFALCON is perhaps one of the most direct examples of an InvesTech start-up looking to democratize access to financial information. The proprietary news aggregation platform effectively allows investors to tailor a news feed, which is customized to their investment portfolio or watchlist, and then receive news articles and excerpts from thousands of news sources across the web, filtered and ranked based on relevance. Investors now have the ability to trade more effectively based on corporate information, and maintain up-to-date with the status of the entities within their portfolios.
2. Trading Platforms and Investing Solutions
Before the InvesTech movement began to take-off, individual investors had two primary options when seeking to invest. First, they could approach a large bank/financial institution and open a trading account, receiving advice from a licensed broker in exchange for substantial commission fees. Second, they could take advantage of a discount brokerage like Questrade, where the fee per trade is much lower, however there are very few resources available to make the investing process less daunting. Within the past two years, however, InvesTech entrepreneurs realized that in a lot of cases, individual investors simply want a platform similar to a discount brokerage, with low fees, paired with an easy-to-understand investing platform.
A Canadian company, WealthSimple, is an excellent case study that depicts the success and growth of the InvesTech movement in this segment. WealthSimple is essentially a discount brokerage that breaks down the investing process into an 'investor questionnaire,' which analyzes each investors individual goals, and recommends a simple, diversified portfolio based on the results. This easy to use platform reduces the stigma around investing, and provides beginner investors with the confidence needed to invest without the assistance of a paid broker.
3. Social Trading and Investing
Investing has become an increasingly interactive activity, with traders and investors constantly seeking new ideas and strategies from friends, business partners, and respected equity analysts. Many mediums previously existed, such as investor forums, which allowed for communication between investors across the globe. However, these mediums were fragmented - it has never been possible to execute on the same platform that the idea was originated, discussed and concluded. The old-school public forums are exactly that, very public. As the 21st century progressed, the social media movement took off; and business sectors across the globe sought to integrate it into their core offerings. InvesTech is now moving in this direction as well, with new firms being established to bridge the gap between investing/trading, and social interaction.
Pelican Exchange is a new trading platform established in London, which is dedicated to achieving this mission of integrating account interaction with investing - Pelican has created a network for traders. Their platform allows for seamless trading, paired with a secure social media platform in which ideas, strategies, and tips and live trades can be shared with the users own contacts. This new system integrates the communicative aspect of investing directly into a powerful trading platform, representing a turn-key solution for the next generation of tech-savvy investors. The biggest hurdle for any trader is to find a reliable source of good trading ideas - and Pelican believes it does exactly that. Pelican is looking to bring to the retail trader what the institutional trader has had in the form of Bloomberg for years.
I know there are a lot more new companies out there that are disrupting leave a comment on which I would love to hear about them.