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  • 5 Fintech Trends to Watch in Asset Management
Article:

5 Fintech Trends to Watch in Asset Management

01 December 2020

The COVID-19 crisis has shined a spotlight on asset management firms’ digital transformation strategies. During the pandemic, contactless transactions and other financial services technologies that help prevent the spread of the virus have been embraced by customers, and organizations that already had a digital strategy in place were able to continue serving their clients seamlessly. However, most firms are still playing catch-up. According to BDO’s 2020 Financial Services Digital Transformation Survey, just 19% of middle market asset management firms are currently implementing their strategy for digital transformation, and nearly half (44%) are either still in the process of developing that strategy (37%), or they plan to but haven’t started yet (7%).

Here are five critical trends impacting the growth of digital solutions at asset management firms.

 

Trend #1:

“Emerging” technology enters the mainstream

For the asset management industry, fintech applications are allowing firms to collect and leverage huge amounts of data that they can analyze to better inform decision making. Asset managers are also using these technologies to differentiate their service offerings as the environment becomes increasingly more complex and crowded.

BDO’s 2020 Financial Services Digital Transformation Survey found that many asset management executives say their organization is already deploying innovative digital capabilities, such as cloud computing (72%), advanced analytics (56%), Internet of Things integration (48%), artificial intelligence (44%) and blockchain (33%). We expect those numbers to grow in the future as the competitive landscape continues to heat up.

 

Trend #2:

Asset management embraces regtech

The use of technology to manage regulatory compliance is nothing new, but belt-tightening by the financial sector in the wake of the Great Recession bred an innovation explosion in the automation of labor-intensive tasks. Since then, the tenets and tools of digital transformation have fostered a fintech offshoot of regulatory technology.

For asset management firms, the emergence of regtech platforms is streamlining tasks like background checks, Anti-Money Laundering (AML) efforts and maintaining compliance with information security and privacy laws. This, in turn, is leading to lower costs and increased productivity. It’s not surprising then that the 2020 Financial Services Digital Transformation Survey reveals nearly half (48%) of asset management firms view this area of fintech as an opportunity to differentiate themselves from competitors.

 

Trend #3:

Prioritizing data privacy

Storing and distributing personal financial data through fintech applications can give rise to significant cybersecurity risks. It’s not surprising then that the asset management industry—and the financial services sector overall— overwhelmingly views cyberattacks and privacy breaches as the most significant digital threat they are facing, according to the 2020 Financial Services Digital Transformation Survey. The threat of cyberattacks has only increased during the COVID-19 pandemic, as cybercriminals aggressively look to exploit network vulnerabilities while workers access company servers from home. As a result, bolstering cybersecurity is one of asset management firms’ top long-term business goals.

 

Trend #4:

Asset management firms will increasingly turn to M&A and partnerships to stave off competition from both fintechs and Big Tech

While the COVID-19 pandemic forced many asset managers to push the pause button on M&A in the short-term, signs point to a resumption of activity in the near future. In fact, a recent BDO analysis of COVID-19’s impact on U.S. bank and insurer valuations indicates that the former had already recovered to 91% of their year-end 2019 value during April, so it’s critical for asset management firms to continue exploring M&A as a viable growth strategy.
According to Gartner, 80% of traditional financial services firms could go out of business by 2030 due to the rapid pace of change brought about by digital transformation. To stave off this fate, many financial services companies with asset management subsidiaries are partnering with and/or acquiring fintech businesses.

At the same time, the fintech sector accounted for just 6% of the total global estimated annual revenue for the financial services industry as of June 2019, according to the IMF. So, while the dynamic among fintech, traditional banks and Big Tech will continue to develop throughout 2020, the endgame will depend on increased overall market penetration of fintech solutions.
  

Trend #5:

Maturing of the fintech mindset

The holy grail for asset management firms will be using digital solutions to create an omnichannel experience for clients—meeting their financial services needs whether through the website, mobile app, call center or in person. However, it’s clear from the BDO survey results that the asset management industry is lagging behind when it comes to implementing digital solutions, and this lack of preparedness has left some firms scrambling to service customers during the COVID-19 crisis. With every element of the competitive and technological landscape in flux—from the type, size and capabilities of competitors to new applications for IoT, AI and blockchain—digital transformation strategies must be adapted for changing circumstances. Traditional hedge funds and private equity firms that are lagging behind will have to reckon with the depth and scope of the changes they need to undertake to stay competitive.
This may be the nexus of all of the above trends and developments. As the level of urgency increases among traditional hedge fund and private equity firms, one can expect an acceleration in investment targeting fintechs, as well as in the adoption of new technologies and alternative platforms—including IoT, AI, blockchain, crypto and regtech solutions. Tempering all of this activity, of course, will be the issue of managing clients’ data privacy to comply with state, national and global regulations, while also reducing the risk of cyberattacks.

 

BDO United States

October 2020