In February this year, fuelled by the emergence of the COVID-19 pandemic, stock markets saw one of the most volatile periods on record, reminding many of the 1987 crash.
Why is that February period of volatility relevant now? Well, its impact is still being felt today and it’s changed the way large investment firms have had to interact with potential clients, many of whom have entered the market for the first time.
Since February, everyday investors have entered the market in droves in what has come to be known as the Robinhood rally. A phenomenon named after the popular US trading app, it refers to the recent trend of new investors trading for the first time in unprecedented numbers trying to take advantage of the lower value of blue-chip stocks.
Everyday investors have been able to access these stocks through the rise of fintech players like Robinhood, which experienced outages and degraded performance a number of times in March. These new players enable an easier route to market, with little to no entry or brokerage fees, for the everyday investor who may only have $1,000 but is keen to spend the entirety of it. The boom isn’t reserved solely for US everyday investors: Australian-born platform Stake recently hit nearly $300m in transaction value over June alone.
Where does this leave established investment firms? These traditional firms are experts at securing large players, but new fintech entrants are quicker off the mark and can get new services out the door faster and which better cater to the new wave of customers.
In an effort to keep up, firms such as Charles Schwab in the US have eliminated brokerage fees – but that brings with it an obvious decline in transactional revenue. Then, it only brings them in line with, but not ahead of, the likes of Robinhood which has offered trading for free since 2013.
These global banks are looking to find new channels to help them capitalise on the everyday investor boom and compete with their agile counterparts – and they’re finding ways to do it. What these firms have that fintechs don’t is a huge, historical and ready-made data goldmine from which to draw actionable intel, insights and more.
Some traditional markets firms around the globe are looking at how this data can be leveraged in real-time to ensure it can close a transaction or encourage more – while the firm itself may lack agility, the data doesn’t have to.
For example, a traditional firm may be able to provide incentives in real-time, such as a 10 per cent discount on the following trade if a customer purchases $4,000 worth of shares, or even a bonus entitlement above a given number of shares. The technology ensures this can be done in real-time, leveraging the cloud, analytical toolsets, artificial intelligence (AI) and machine learning to surface the data wherever it may be.
As these activities would be undertaken to foster loyalty, downstream revenue would instead be generated from asset and portfolio management/advisory. Fintechs cannot compete with this; at least not yet.
These firms don’t need to be agile in and of themselves – rather, they’re finding what they need is fintech-like technology to be agile for them, working within the existing parameters of the business and leverage what it already has to find a quicker way to market.
What these firms have that fintechs don’t is decades of data and expertise that can amplify the investment in an algorithm or new data management approaches. Technology put the traditional firms to the sword, but it’s now also providing them with their own sword in the form of healthy data to fight back.
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