Last week, our Shaping FinTech series delved into the world of consumer investing. We spoke to Welathify’s Dan Giddings, Zopa’s Natasha Wear and Nucoro’s Melanie Palmer about the future of consumer investing products and the culture shift that needs to take place to make consumers more empowered with their money.
You can view the full webinar below, but here are some things we learned from the discussion…
Despite the array of new products out there, not all consumers are keen to invest. Research into Junior ISAs has shown 57% of money still goes into cash products, which in the long term will guarantee a loss when it comes to inflation. Consumers might be better off investing this money, especially if it’s over a long period of time, but many people feel they don’t want to put savings – especially for their child’s future – at any kind of risk.
This points to a key issue of education around consumer investing. The average customer does not yet have the trust and belief that investing is the way to go – and it’s the provider’s responsibility to address this.
It’s clear a mindset shift is needed. The technology we have at our fingertips today, whether that’s a managed investment product, a robo advisor or a peer-to-peer lending platform, gives customers the chance to get involved with as little as £1 – but it’s not just about access. Consumers must be equipped with knowledge around what investment really is, whether we’re talking about stock trading, tracker funds of even supporting a startup, and how these elements come together.
Risk should be taken into account as a general part of the investment experience, but consumers can be made aware of steps they can take to mitigate risks and how they can become more engaged with the investment journey. This is the role banks and investment platforms need to play.
Covid-19 has seen an increase in conversations around investing as well as the use of FinTech platforms more generally. While the crisis has seen many people put on furlough or made redundant, a high number of consumers are currently still working full time but their discretionary spend is lower due to lockdown restrictions. This has prompted some to think about what they can do with this money and how they can make it work harder.
Furthermore, those who are more vulnerable to economic risk have become even more aware of the importance of a financial cushion. A Zopa survey found 40% of people will look to boost their emergency saving reserves over the next 12 months, prompted by the crisis and the impacts it may continue to have. Covid-19 has provided a moment for people to stop and think about their financial security and their immediate as well as long-term goals.
Regulation is beginning to catch up around consumer investing, but needs to be more specified. At the moment, there are many checks (such as a suitability test) one has to go through in order to invest with a platform like Wealthify, even though it is managed by wealth experts. There are, in fact, more hoops to jump through than investing through a traditional wealth manager.
In order to be accepted as a mainstream product, it is of course necessary to gain regulatory permissions and build up a relationship with the regulator – and this is vital in preventing “bad apples”. In the case of peer to peer lending, regulation is beginning to mature and so in turn is the attitude toward businesses. There have been some high-profile collapses of platforms along the way which has not helped brand recognition, but the next wave of regulation should weed out the last of these and start to develop an easier landscape for P2P businesses.
Perhaps it is time to move away from principle-based regulation to more tight, specific things that are easier to understand. Regulation has some way to go before it’s more streamlined and consumer investing platforms can get the same answer for every compliance team. This could also push the necessary mindset shift forward, since it’s more difficult to reassure and build trust with customers if there are so many hurdles to go through.