Jayson Forrest is the managing editor of Money & Life Magazine.
Stone & Chalk’s Alex Scandurra talks to Jayson Forrest about macro trends in fintech and discusses how fintech is helping to improve the efficiency and engagement of planning practices today.
It’s been a fast ride in the technology space over the last two decades, with financial technology – or ‘fintech’, as it’s more commonly known – revolutionising the way we do business.
In fact, turn back the clock 10 years, and most fintech innovation was occurring in payments. Today, fintech is impacting the entire value chain; from front to back-office, wealth management and superannuation, retail banking, investment and credit.
At times it can seem like a struggle to keep up with advancements in technology, with infrastructure and network innovations, like Cloud services, and distributed systems, like blockchain, all driving greater efficiencies and reducing costs to businesses.
Today, technology innovation is all pervading – not only in business but in the lives of everyday Australians. And for businesses to thrive and survive in tomorrow’s future, technology will be key.
Friend or foe?
But is fintech really a threat to financial services?
“Absolutely not,” says Alex Scandurra – the chief executive officer of Stone & Chalk – an independent, not-for-profit fintech hub that helps foster and accelerate the development of fintech start-ups.
“Instead, I prefer to use the term ‘impacting’, as not every fintech is disrupting financial services incumbents,” he says.
“In fact, the vast majority of fintech start-ups are enablers to incumbents. That is, they see banks and financial institutions as their customers and partners. They are creating tools which improve the customer experience. They are providing solutions for data analytics and are digitally automating manual processes that are helping large financial institutions deliver a better experience to their customers at a reduced cost.”
However, Alex believes the impact of fintech is being felt differently in various markets, depending on a range of factors, such as the market mix of key players. Here in Australia, like the UK, the big four banks control about 80 per cent of the market and so, gaining penetration and market share for fintechs can be slow early on.
“But in the long run, because fintechs lead with a digital first/digital only strategy, fintechs benefit from the significantly lower cost structures and computational power that is, in comparison to humans, arguably infinite in its ability to access, process and deliver accurate and reliable solutions for customers,” Alex says.
Indeed, through his involvement at Stone & Chalk, Alex is privy to world-class innovation, and he identifies several areas in which fintechs are changing how the technology game is played on a macro level. Two that come to mind are currently the flavour of the month – Bitcoin and blockchain.
Put simply, blockchain is a public ledger where transactions are recorded and confirmed anonymously. It’s a record of events that is shared between many parties, and importantly, once information is entered, it cannot be altered. While Bitcoin is a decentralised digital currency (or cryptocurrency) system that works without a central bank or single administrator.
“We could spend hours debating whether Bitcoin and blockchain are real or not but in the space of about a year here in Australia, these two terms have gone from topics of discussion to the start-up world, amongst a community of enthusiasts and entrepreneurs, to something I have heard tradesmen at a pub talking about.
“What the outcome of blockchain will be, ultimately from a consumer’s point of view, is anyone’s guess, but I don’t think the world will ever be the same again and that will be a good thing for us all.”
In recent years, Alex has seen an increasing number of fintechs take root in Australia, with a number of non-bank lenders entering the market and beginning to gain scale.
Whilst none of these fintechs have yet supplanted a major bank, they are certainly increasing the size of the SME and consumer market, providing these markets with a source of affordable finance that is approved in a matter of days or, in many cases, hours. In the case of SMEs, Alex believes that’s something that many institutions are still far from being able to do.
Fear vs fact
Traditionally, financial planning has been a sector fearful of fintechs rolling out technology that might replace it or dilute the planner/client relationship. But is this fear reasonable?
“You can’t hide from change and think that things will remain the same,” Alex says. “Change is happening all the time and just like in other areas of our lives, innovation changes the rules of the game.”
Just as digital cameras killed off film, which is now being taken over by the digital experience offered by Apple products, Alex believes so too will it be for financial services. He says fintech will change the sector from being partially analogue and digital to being fully digitally-enabled, “where humans play a role only where they outperform computers”.
He uses two scenarios to demonstrate the point:
“In the first scenario, we have analogue. This is where planners do their own research, pick their investment options from preferred fund managers, and provide great face-to-face client service. However, the software used by the planners is old and clunky, and they can’t generate the types of reports for their clients that they would like to. They are also limited in the investments they can recommend to their clients, given the limitations in their time and resources.
“In the second scenario, we have fintech. This group of planners have adopted the latest fintech solution that performs an analysis of their clients’ real risk appetite based not on questions but simulations. Together with their desired life goals, the software conducts billions of calculations to help develop the portfolio mix and allocations, providing the client with a range of certainty at retirement. Each client has a portfolio that is unique to them, processed by computing power that far exceeds human capacity. The client is able to access their portfolio, run comparisons against other benchmarks and run reports in real time, at any time, from any device.
“That’s the reality we’re living in today,” he says. “I know which type of planner I’d like to invest my money with.”
In fact, Alex is bullish in the role fintech is already playing in supporting planners within their own businesses, including providing greater operational efficiency, reducing costs and providing improved outcomes for clients.
“Fintech is helping planners in many ways, such as in areas of engagement with their clients, improving access to information, providing greater capability and efficiency to bespoke solutions, and ultimately, helping clients meet their financial and lifestyle goals,” he says.
“In fact, fintech is enhancing the financial planning process, not detracting from it. And while adopting new technology provides both opportunities and challenges for financial advice practices, technology can’t yet replace the empathy and personal service that is so integral to the trusted client-planner relationship. That’s where the ‘human element’ outperforms computers.”
So, what excites Alex the most about what he is currently seeing in fintech?
It might sound clichéd but he claims to be most excited about the fact more Australians are also excited about fintech.
“Three years ago, fintech was a term hardly anyone knew about. Now we have people from all levels of Government – from the Prime Minister down – all realising how fintech is helping to transform our economy and helping to support other areas of innovation, such as in cyber security, insurance, connected devices, data science through to agriculture. And this is to name just a few.
“I’m also excited by the growing numbers of angel, venture capital and institutional investors looking to participate and invest in fintech for the same reasons. And I’m excited by the sheer quality of founders and start-ups which, despite many being first-timers, on average come with over 20 years’ experience.”
As for macro trends, Alex reckons blockchain and cryptocurrencies are the ones to look out for, but also firmly on his radar are robotics, artificial intelligence and automation.
“You can think of these innovations as being the ‘black box’ of magic. Their capability for changing the way we do things and how we make decisions, will be enormous.”
And then there’s quantum computing, which takes a new approach to processing information. Built on the principles of quantum mechanics, it harnesses complex laws of nature to run new types of algorithms that processes information more holistically.
“We all need to acquaint ourselves with the strange and exciting world of quantum computing,” Alex says. “Quantum computing may be 5-20 years away, but it’s going to change everything. We still have no real comprehension of just how significant quantum computing will be, particularly when we’re still grappling with moving from analogue to digital to automation.”
Alex also acknowledges the FPA’s initiative of releasing its own Fintech Report – Mapping Fintech to the Financial Planning Process? He is particularly impressed by the process undertaken to map fintech solutions to the six step financial planning process.
“It’s the quality of research underpinning this report that makes it essential reading for financial planners. The findings clearly debunk a lot of myths surrounding fintech, whilst clearly demonstrating the value of fintechs in the financial planning process.”
Think globally, look locally
When it comes to the adoption of fintech, Australia punches well above its weight. According to the EY FinTech Australia Census 2017 report, Australia comes in fifth at 37 per cent, behind the likes of China (69 per cent), India (52 per cent), UK (42 per cent) and Brazil (40 per cent).
Alex agrees it’s an impressive statistic and is mindful about avoiding anything that might threaten to kill the momentum created by fintech innovation.
“The fintech sector in this country has been extremely diligent in how it has formed associations, worked with policy makers, regulators and industries. What we need is to keep feeding its growth by helping Australia become the most attractive market for fintech in Asia.”
Alex believes this means extending and deepening the incentives for investment into fintech, as well as incentivising established firms to procure from, and be a customer of, fintech start-ups.
“Australia needs to become the easiest country in which to secure top global talent to plug our local skills gaps, as well as making it easier to attract great start-ups to Australia from overseas. We have only touched the surface of what countries like the UK, Israel and Singapore are doing in terms of investing in fintech, so we still have a long way to go.”
That said, Alex still believes there is much the Australian financial planning profession can learn from looking overseas to countries like the UK, when it comes to identifying international solutions to their problems?
“First, you need to properly understand the market you are playing in.
“Sure, if you’re a big player, like AMP, then it makes sense to also canvass what technology is available beyond our shores and compare that against Australian contenders. But if you are competing locally, then you need to focus on beating the other fish swimming in the same pond,” Alex says.
He believes the best way planners can do that is by visiting Stone & Chalk or Fintech Australia to see what start-ups they are working with and what solutions might be available for planners.
“These are the best places to start,” he says. “Frankly, given the size and sophistication of our super industry, I have seen solutions here that are miles ahead of the biggest players in the United States in terms of technical innovation.
“So, don’t underestimate our local talent and the fintech solutions they offer to your business.”
Planners share some of their favourite fintech apps - some of which you may not have heard of.
Astute Wheel client engagement software includes financial planning software, estate planning software, financial planning modelling calculators and tools.
Buffer is a software application for the web and mobile, designed to manage accounts in social networks by providing the means for a user to schedule posts to Twitter, Facebook and Linkedin.
Calendly provides a clean, simple way to let people schedule meetings with you when you’re available. Set up your availability for various meeting types, then send clients or coworkers a link that will show them your availability.
Dropbox is a file hosting service that offers Cloud storage, file synchronisation, personal Cloud, and client software.
Duet Display lets you use your iPad or iPhone as an external monitor.
G Suite is a brand of Cloud computing, productivity and collaboration tools, software and products developed by Google.
GoToMeeting is an online meeting, desktop sharing and video conferencing software that enables the user to meet with other computer users, including clients and colleagues, via the Internet in real time.
LastPass is a Cloud-based password management service that stores encrypted passwords in private accounts. LastPass is standard with a web interface, but also includes plugins for many web browsers and apps for many smartphones.
MailChimp is a marketing automation platform and an email marketing service.
Moneysoft enables users to link their personal bank accounts, empowering them to perform goal setting and targeted savings through a highly visual and intuitive user interface.
Omny Studio is an all-in-one audio capture, storage, editing and analytics solution, built for radio and podcasters.
OneNote gathers users’ handwritten or typed notes, drawings, screen clippings and audio commentaries.
Skype is a telecommunications application that specialises in providing video chat and voice calls between computers, tablets, mobile devices, the Xbox One console, and smartwatches via the Internet, and to regular telephones.
SuiteBox is a digital workspace offering online meetings, video conferencing, screen share, digital signature and a host of other collaboration tools, enabling planners to meet with clients whenever and wherever they are.
Vimeo is a video-sharing website, where users can upload, share and view videos.
Voxer is a ‘walkie talkie’ messaging app for smartphones with live voice, text, photo and location sharing.
Wealth Projector is a customisable tool to help clients forecast their financial future, thereby enabling them to make informed decisions.
Xero is a Cloud-based online accounting software for small and medium-sized businesses.