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Fintech and Sustainable Investing Poised to Revolutionize Financial Services

Fintech and sustainable, responsible and impact (SRI) products are revolutionizing how financial services are delivered. These two sectors in particular have attracted massive investor interest and are poised to transform the way people invest and transact, according to a new report.

The Innovation in Investment report, written by The Economist Intelligence Unit (EIU) and sponsored by Standard Chartered Private Bank, examines how innovation and technological advances are opening up new avenues of investment opportunities for investors, and how they may develop in future.

SRI, an investment disciple that considers environmental, social and corporate governance criteria to generate long-term competitive financial returns and positive societal impact, has grown significantly in recent years in terms of the number of practitioners, assets under management and general public interest.

According to the report, SRI is on the cusp of a revolution. The practice is poised to enter a period of growth among a wider base of investors, beginning with high net worth individuals (HNWIs).

Investor demand and the emergence of initiatives such as the UN-backed Principles for Responsible Investment will drive the creation of new frameworks and measurements for sustainability indicators and standardize sustainability, the report says.

Developments in information processing and impact measurement systems mean investors who want to know whether their invested assets are a net benefit on the planet will be in a better position to find out.

For industry participants and experts, there is no doubt that technology will “democratize” investment. “The gaps between large institutional investors and HNW investors in terms of access to information and investment opportunities will narrow as solutions emerge that harness and analyze data on behalf of the individual user,” the report says. “Automated and mobile platforms, meanwhile, will provide individual investors with a wider range of asset management solutions at lower overall cost.”

Philippe El-Asmar, CEO and co-founder of Amareos, believes that developments in artificial intelligence (AI) in particular could bring profound changes to the world of finance.

“Right now most AI is not necessarily applied to finance—it might be to smart cars or smart cities or cyber-attacks or cyber-security—but if it ever is, there might be some major differences in the way markets are trading,” he said, pointing out that current robo-advisors had little to do with AI, being more about automating existing processes.

“Within the next five to ten years I don’t expect to see a machine capable of trading the markets better than the best human beings,” El-Asmar said, yet in the longer term this may change as more “machine learning” takes hold, and automated investment solutions grow more sophisticated.

Emerging markets jumping in

Alibaba, via Flickr

In China, mobile investment has exploded in recent years, thanks to the fintech revolution that’s been undergoing since the launch of Alipay by e-commerce giant Alibaba back in 2014. At the time, e-commerce in China was largely cash-based, and fraud rampant. Alipay was initially developed as an escrow solution that withheld payment from the merchant until buyers accepted shipments.

People were quick to start leaving cash in their accounts, so in 2013, Alibaba created Yu’E Bao, a money-market fund, which it acts as its distribution channel. By 2016, Yu’E Bao had assets under management of well above US$100 billion. Today, it is the world’s largest money-market fund.

The report predicts that the spread of SRI investments will rapidly extend to more emerging markets as income rises and fintech development make engaging with investment products easier and cheaper.

In 2015, India, which is expected to overtake China to become the world’s most populous nation by 2022, lured more than US$500 million in dedicated impact investment. The country is home to over 700 social enterprises.

Yet, there’s still a great amount of work to be done in terms of SRI education in emerging markets.

“High net-worth individuals [in India] don’t believe that impact investing is seen as ‘doing good’ as much as philanthropy is,” said Amit Bhatia, the CEO of the Impact Investors Council (IIC).

“The education has to be that it’s not giving away the money; you keep that money working year after year to put into social challenges. But that is not the mental setup yet. It will change, but it will be a slow process.”

Featured image: Investing money, Freepik