Why New Age Investors Are Pursuing Asset Allocation With Fintech Industry Support

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Over the past three years, India has produced the second largest number of fintechs. The adoption rate in India is 87% compared to 64% globally. This tremendous market expansion can be seen particularly in the areas of loans and personal finance. According to some statistics, India has around 17 fintech startups that have reached “unicorn status” with a value of over $1 billion as of December 2021.

Traditional retail investor channels, such as fixed deposits, can no longer keep up with inflation. Thus, a growing trend of “new era investors”, mostly young millennials, are pursuing asset allocation with support from the fintech industry.

The convergence of technology and finance has the potential to have a huge impact on people’s lives, especially in a country like ours, where the number of internet users is expected to continue to grow. Fintech will change investment banking in a variety of ways, including leveraging sophisticated technologies like the cloud and artificial intelligence. Investment institutions will need to adapt and embrace these technological advances in order to remain competitive. Fintech and related services can provide both immediate and long-term benefits.

Unifying innovation and efficiency

Compliance is one of the biggest barriers to efficiency in investment banking. The need to keep up with regulatory changes can sometimes stifle innovation as finance teams struggle to keep up with new compliance standards while maintaining up-to-date systems. As a result, a team of investment bankers can experience organizational fatigue and productivity drops. Fintech technologies such as platform installs and cloud migrations, fortunately, are changing the way financial institutions think about compliance.

Investment management has steadily caught up over the past decade, embracing fintech and ushering in the emergence of digital asset management services and platforms. Investment management organizations have been able to innovate not only in the design but also in the delivery of their financial goods and services thanks to advances in technology.

Data and artificial intelligence are increasingly used effectively to identify risk variables, optimize portfolios and evaluate numerous investment possibilities. Additionally, the emergence of machine learning, which allows computers to train themselves to perform specific tasks, has contributed to the advancement of investment decision-making capabilities.

Investment in fintech

According to Accenture and CB Insights, global funds have invested more than $100 billion in fintech companies over the past decade. This fundraising frenzy has continued in recent years, with more than $20 billion invested in the fintech industry in the first quarter of 2021 alone (CB Insights).

The United States received the most investment (54%), followed by India and the United Kingdom. Due to the rise of data analytics and increasing investments in data tools, banks and other financial institutions have been able to develop better models to help them in their day-to-day operations.

In emerging market and developing economies (EMDE), there is a significant infrastructure deficit. According to World Bank estimates, EMDEs will need to quadruple their current annual spending on infrastructure over the next decade.

According to the Asian Development Bank, the infrastructure financing gap could represent up to 5% of a country’s gross domestic product (GDP). The majority of infrastructure investment needs (around 63%) are concentrated in EMDEs. The importance of infrastructure to poverty reduction and long-term growth in developing countries highlights the need to close these gaps.

Summary

Instead of using a relationship manager model, many financial sites have turned to artificial intelligence technology for guidance. The client receives factual advice since AI is data and insight driven and free from subconscious biases.

And that is exactly what the Indian financial services sector needs: transparency and openness. The goal of new and growing fintech companies is to provide individuals with options that were previously only available to institutions or HNIs, as well as educate investors about the products. Finally, it’s about empowering consumers to make decisions by giving them all the information they need, whether it’s risk or business model, to make an informed decision.

(The writer is a partner of the 9Unicorns Fund)

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Posted: Saturday, February 26, 2022, 4:41 PM IST

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