Automatic for People: Fintech Gets Personal

Automatic For the People : Fintech Gets Personal

Fintech investment is booming, but what’s fuelling it – and is it sustainable?

Paolo Sironi explains why the future lies in robo-advisers and game playing.

After the financial crisis of 2008, you’d often hear Winston Churchill’s words invoked: never let a good crisis go to waste.

Fintech entrepreneurs clearly took note. In the past few years, fintech has emerged as one of the strongest examples of what the WEF’s Klaus Schwab calls the Fourth Industrial Revolution, where technologies fuse with the ‘real’ world to impact economies and industries, “even challenging what it means to be human.” Investors and multinationals have been pouring money into fintech start-ups – more than $50bn into 2,500 companies since 2010, according to figures from Accenture, the consultancy. In the first quarter of this year, global investment in fintech start-ups hit $5.3bn, a 67 per cent rise on last year. In Europe and Asia Pacific, investment nearly doubled.

While some talk about bubbles – citing the implosion of ‘unicorns’ such as the UK’s Powa – Accenture maintains the industry is levelling out and becoming more mainstream. In the past the set-up was one where new, digital Davids took on financial Goliaths, but fintech advocates now see scope for incumbents to align with disruptors and emerge with better ways of serving customers. “Disruption is already underway, though it might take the form of transforming existing firms more than putting them out of business,” is how Paolo Sironi puts it. An expert on quantitative financial analysis and digital technology for IBM, Sironi’s latest book, “FinTech Innovation”, offers a detailed, behind-the-scenes look at where fintech is going next. It charts the evolution of ‘robo-advisers’, and how goal-based investing and gamification will transform how we manage and invest our money in future.

“We’re seeing personalisation converging with planning and advice” among digital, or robo-, advisers, which attempt to standardise that personalisation via technology, as Sironi explains. He sees customer demand as a major force for transformation: “Banks have become too complex. Trust has eroded. There is a need for change in order to help people manage money differently. Financial advice needs to become more transparent and truly independent, rather than pushing products.”

Regulation is the main impetus for change. That has forced existing institutions to “think differently. Banks won’t continue to make money in the same way,” he says: “Greater transparency [of pricing] and a recognition of the need to put clients at the centre of their services is forcing banks to shift from distributors of products to the packaging and distribution of advice.”

Fintech is exploiting this position by offering simpler, cheaper ways for customers to invest, engaging them more and disintermediating the banks. In the last few years, that had led to a boom in ‘wealth-tech’ and robo-advisers (such as Nutmeg), but also peer-to-peer lending: “anywhere where disintermediation is possible.” Banks may be big tech spenders, but they are often outdated, he adds. “If you’re a newcomer, you can build technology around need, so you can be more agile.”

Robo advisers can offer a buffet of service levels, instead of using a standard questionnaire as their best guess of what a customer wants.

As a result, they are increasingly targeting affluent customers. Now provision is based on the needs and the tech literacy of clients. “It doesn’t necessarily mean they appeal only to digital natives.”

But it’s not just a question of throwing technology at the sector. “What you sell to customers, the way you engage, must be different.” This is at the centre of what Sironi calls ‘goal-based’ investing, a philosophy that puts the individual investor at the heart of decision-making. Goal-based investing draws on behavioural psychology – what individuals want from their investments, how they hope to use their money, and when. “The true risk that individuals face is not market volatility but the probability of falling short of personal goals,” according to Sironi. Addressing this is the true game-changer, because it more accurately matches the advice to personal goals and ambitions over time.

But human beings are notoriously bad at identifying what will make them happy in future, as we’ve learned from psychologists such as Daniel Kahneman and Daniel Gilbert. What suits us today won’t always be a priority tomorrow. Sironi sees gamification as the third big trend to address this. Gamification, he says, is a way for institutions and investors to understand their own attitudes to risk. “If you don’t understand markets, you’ll be seduced by latest headlines. Simulated games can help you feel pain and gain in a ‘safe’ environment. You can learn from how you behave in the game, and shape your portfolio based on this,” he says. Banks already use war games for that purpose with corporate clients. Digital engagement of human planners will also help them improve profiling, and there could be more start-ups emerging to offer educational opportunities for institutions. AI capabilities allow the technology to ‘learn’ and teach individuals about their own tolerance for risk. The potential effect of these refinements? There could be less exuberance, as people learn to stay the course and seek out longer-term opportunities, rather than just following the market. It will be start-ups that can combine the ‘fin’ and the ‘tech’ to create something new that will stand out. “Disruption cannot last unless there’s a way of sustaining innovation,” says Sironi, citing how Apple morphed from a hardware producer into services and branding. Financial incumbents that survive will do so by creating alliances with new ventures that transform them from the inside. But the most disruptive quality of fintech is, ultimately, not that it’s automated. It’s not the digital element that makes start-ups transformational. It’s how they can enhance the personal.

The Envestry Platform

Envestors launches the Envestry platform

In 2014, Envestors was looking for a digital solution to enable their sophisticated investors and high-growth businesses to meet, interact and finance growth in a secure environment. Finding nothing to fit the bill, they capitalised on their 10 years of experience designing and building their own solution.

The result is the Envestry platform. Now the Envestry platform can be licensed and white labelled, allowing companies to curate investment opportunities to offer to their own network of private investors while Envestors takes care of FCA compliance. The Envestry platform has 40 licensees and over 5,000 investors, giving it the potential to become the network of networks.

“We built the Envestry platform to make it possible for organisations to run their own networks,” says Oliver Woolley, CEO of Envestors. “When your platform has been built by people who’ve been in your shoes, you know it’s going to have all the features you need.”

The Envestry platform also puts powerful features in the hands of companies wanting to raise money from their own community. They don’t have to give a third-party their customer lists or worry about sending their potential investors to a site that will distract them with competing opportunities.

Perhaps licensee Modwenna Rees-Mogg of The Pluralists Club put it best when she said “Envestry is run by people who really understand the DNA of investing.

 

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Matchmaking Advice From a Secret Millionaire

Mike Greene, one of Channel 4’s secret millionaires, doesn’t mince his words when it comes to investing. Poorly-presented opportunities to invest in early stage companies mean investors like him end up “kissing a lot of frogs”.

“A lot of the time, I’m asked to go and see a company that wants investment, but they don’t have financials, shareholder agreements and other details to send me, so I end up in a meeting where all I’m seeing is raw enthusiasm. Afterwards, when I eventually get the details, the fundamentals aren’t there, and I’ve wasted my time and theirs.”

Mike is also often asked if he knows of any companies that are looking for investment, which has in the past made him something of an informal matchmaker. But no one wants to be the matchmaker known for pairing investors with frogs.

“When I heard about the Envestry platform, it was exactly what I needed to formalise what had started to become a financial dating agency. It’s not something I would have considered taking to the next level without the Envestry platform.”

It wasn’t for lack of looking around, Mike says. “There just weren’t platforms that could handle the needs of sophisticated investors at the £100,000-plus level, definitely nothing this user-friendly.”

Ease of setup and administering was important to Mike, who values his time the way every good investor does: with an eye to return on investment.

Mike Greene, Mike Greene Investments

Mike Greene, Mike Greene Investments

“It’s like driving. I know why I want to go from A to B, and I know how to get there. I want a car that will do the job without me having to understand how the engine works. The Envestry platform is like the car. It’ll take me where I want to go, and I’ve got Envestors making sure the engine is running correctly. And if I can use the technology, you know it’s pretty straightforward.”

The Envestry platform is new, but its developer, Envestors, isn’t. Mike has had a six-year relationship with Envestors after being introduced to them by Coutts, one of the company’s strategic partners.

“Having seen how diligent they put together deals for their network, I knew they were the ideal partner to take care of the financial, legal, and admin side while I go out to find great deals and investors for my network.”

When Envestors told Mike about the launch of the Envestry platform, Mike switched gears immediately. He went from passing on details of opportunities when asked to seeking out deal opportunities he could share through his Envestry site.

As an established and successful private investor network, Envestors has significant experience doing what Mike is now doing on a formal basis.

We built the Envestry platform to make it possible for highly active investors like Mike to run their own networks,” says Oliver Woolley, CEO of Envestors. “We designed it so Mike can do what he’s expert at—finding opportunities—and draw on our expertise in running a network. When your platform has been built by people who’ve been in your shoes, you know it’s going to have all the features you need.”

“They’ve made it simple,” says Mike. “If you’re an investor you can register and see what opportunities are available on mikegreeneinvestments.envestry.com. And I can change the look and feel as I want. If you’re a company looking for investment, there’s a simple template to fill out. I can review the submission, interview the company then register a deal and put it live if I think it’s appropriate for my network to see for themselves.”

All the information a potential investor needs is already loaded into Envestry before Mike presents the opportunities to his network. That means Mike is not only making a return on his matchmaking of investors with early stage companies, he’s confident no one is having to kiss any frogs.

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An investment platform that fits

David Hathiramani, CEO of A Suit That Fits is no stranger to raising money on an investment platform. That’s why he was excited to hear how the Envestry platform worked differently.

In 2015, A Suit That Fits raised £876,700 on a website that, in David’s words, “didn’t give you much control”. Being unable to tailor an experience is especially unappealing to someone who has spent 10 years building a booming business around customisation.

A Suit That Fits sells more bespoke suits every year than all of Savile Row. It has global operations and in 2016 was ready for more investment. The company wanted to improve its website, invest in its factory, update its brand and train more of its fit experts.

It also wanted to make sure that it’s fundraising efforts were as efficient as possible this time round.

The company is well-suited to using a funding platform to raise investment because it has a natural constituency for the offer. “Our customers are suit-wearing people,” says David. “Half of them wear suits for work and are based in London. They fit the crowdfunding demographic.”

The last time A Suit That Fits raised money, it meant sending their customers to a website the company couldn’t control. Not only that, it first had to persuade its customers to become clients of the website, which used every investor visit and email address to present competing opportunities.

Companies that use such sites have no way of knowing how many investors they introduce as customers of the site and who are ultimately distracted into investing in someone else.

Envestry, the controllable funding platform from Envestors, works differently.

“We’re not dissimilar to A Suit That Fits,” says Envestors CEO Oliver Woolley. “In Envestry, we developed a platform to fit the client. We don’t expect the client to adapt to fit the platform. Envestry users have much more control over the process than they have elsewhere.”

Another area where the Envestry platform’s difference shines is in access to the data. Open platforms generally mean signing away valuable data (customer lists) and getting none in return. Envestry platform clients don’t give away their customer data, and they get access to information that isn’t available on other platforms.

“We could see in real time which one of our investors had logged on,” says David, “so we could track if an event or piece of marketing led to an investment.”

“We found the whole process of setting up our Envestry platform very slick,” says David. “From start to finish, you could tell Envestors had done the due diligence and checks a million times before. The whole thing only took a couple of weeks.”

David Hathiramani, CEO, A Suit That Fits

David Hathiramani, CEO, A Suit That Fits

David says he found the Envestry platform itself easy to use, but even he didn’t turn on all its features because they weren’t necessary for this round.

“You can tell they’ve built it to be easy enough to use if you’re not such a technical person but comprehensive enough to allow you to do almost whatever you can think of to do with it. And as an Envestry platform user, you get a personal service from the guys at Envestors.”

“After a long time running a successful private investor network, we know what features companies need when they’re raising funds, and we know what investors want to see,” says Oliver. “We’ve put all of that know-how into the Envestry platform. Also, of course, Envestors is behind it, able to give advice and handle all the legal and regulatory compliance. Envestors gives you all the tools in the Envestry platform that you could imagine, but you’re not on your own trying to use them.”

And the tools don’t vanish when the funding round closes, either.

“Companies who use Envestry have the tool there for further funding rounds,” says Oliver. “They can use it as an investor relations portal to keep their shareholders and investors informed of progress and developments. Then if they want to do further funding in the future, they’ve got everything in place to switch it on and make it happen.”

Where are they now?

We’re pleased to bring you exciting updates from Envestors companies:

Faction_Black - logoFaction Skis’ recent apparel range launch has enabled it to reach the technical, lifestyle market. It has helped Faction Skis to grow 68 per cent in the season just closed, making it the fastest growing ski company in the industry. Its opening of 100 new retail channel doors for 2016-17, from Japan and Dubai to Colorado, along with a licensing deal with Quiksilver for Roxy means Faction Skis is set to grow another 70 per cent in the season ahead.
www.factionskis.com

Atlantic HealthcareAtlantic Healthcare is a transatlantic specialist pharma company focusing on gastrointestinal diseases. The first six months of 2016 have been extraordinarily busy for Atlantic. In February, it started a Phase 3 clinical trial (the last stage before regulatory approval) for its lead product, Alicaforsen, to treat pouchitis – a rare form of inflammatory bowel disease. The company also raised $24m through the founders of Salix Pharmaceuticals, Clinigen, and LDC (the private equity division of Lloyds Bank). These funds will take Alicaforsen through to “market-ready”. Most recently, Atlantic established its US office and appointed both sales and marketing, and business development teams.
www.atlantichc.com

Calon CardioCalon is developing the next generation of affordable, implantable micro-blood pumps to treat chronic heart failure. It has completed the pre-clinical testing to demonstrate the effectiveness of its new, passive magnetically levitated bearing in the MiniVAD system, and has achieved extraordinarily ‘clean’ animal data to support the lab data previously generated. Calon has also benefited from a series of positive interactions with major corporates active in cardiology/cardiac surgery. They have expressed interest in partnering with Calon and/or funding the development of one of its programmes, the MicroVAD, a smaller blood pump for use in earlier stage patients.
www.caloncardio.com

YocudaIt has been an exciting year for eReceipts, now known as Yocuda, the leading digital receipts provider. The business recently launched the world’s first, end-to-end, in-store customer identification and engagement solution. This was the driving force in the rebrand of eReceipts to Yocuda, an abbreviation of ‘Your Customer Data’, a name reflecting the company’s new, wider service offering. Its database has grown to over 20 million unique customers and the company is processing around one million receipts a day for clients including Argos, Debenhams, Halfords, Monsoon Accessorize and Booths.
www.yocuda.com

Free Family FinanceFfrees, the online current account provider has now opened over 65,000 accounts and has had current account throughput of over £150m. In July this year it will launch the UK’s first fully integrated, fully functioned digital current account.
www.ffrees.co.uk

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Shopping for Angels

They have cutting-edge technology, but when it came to securing investment, GoInStore’s founders admit they had plenty to learn.

Online retailing may be on the rise, but in-store sales still account for a sizeable proportion of consumer spend. Forward-thinking retailers are betting on seamlessly linking bricks and clicks to make omnichannel retailing a reality.

So any company that can help the £28.1bn retailing industry is likely to attract headlines. That’s one of two things delighting André Hordagoda, who co-founded GoInStore with business partner Aman Khurana. The other is the company’s product itself – “a great idea that delivers value to customers at a point that has not been well addressed by others,” he says.

That idea marries tech with traditional shopping by allowing customers to shop virtually as if they were in-store. A customer is assigned a sales assistant, who demonstrates products in the store using a digital camera.

The software alerts store staff to potential online ‘visitors’ they could be helping, using an algorithm to allocate a salesperson to each customer. At the store, sales people get relevant, real-time information about the customers they’re helping.

Its smart technology gives GoInStore the wow factor, but it’s also a practical solution to a serious problem: how to replicate the in-store immediacy of shopping for digital customers.

GoInstore has attracted the media’s attention, not to mention an innovation award from the 2015 Mage Titans and a nomination for a coveted GLOMO at this year’s Mobile World Congress.

Pitch perfect

Financially, the business is growing. GoInStore has raised £380,000 of its £500,000 target from High Net Worth individuals. But getting there was initially tough. “When we started fundraising we didn’t know much about the venture capital scene at all. We began by Googling VC firms,” says Khurana. “Every time we met a new investor, we’d have a new business plan – we must have had 10 business plans written by the time we met Envestors.”
This proved a turning point. Says Khurana: “We were put in front of a lot of investors. At one event we formally pitched for eight minutes, which we had never done before. At first, it was hard to get good, solid offers on the table. But we persevered and all of a sudden there was an avalanche of interest.”

Adds Hordagoda: “At first we were a little concerned that they [Envestors] charged an upfront fee as well as a success fee – we’d had some bad experiences with that model so we expected a top notch service.”

“Alongside the money, they brought relevant industry experience and a strong network which could potentially open doors at CEO-level among some of our key prospects,” says Hordagoda, perhaps referring to active investors such as former advertising entrepreneur Matt Nicholls.

GoInStore’s team also gained insight into Envestors’ rigorous due diligence, which ensured they had everything ready when investors started to express interest. “We lacked experience in that department, and frankly, we had more than enough to focus on. Fundraising is full on,” adds Khurana. “We attended lunches, dinners, pitching events and follow-up meetings, all facilitated and attended by Envestors. Some investors wanted to meet several times before committing, others were happy to invest after just a single meeting. But that only happens when investor and company are well matched.”

Having secured funding and clients (including a major high-street electronics store), GoInStore is now looking to expand. It has made a key hire at CTO level, bringing the UK team to six, and it has moved offices to a vibrant co-working space, Interchange Atrium. The next challenge? “Making sure we continue to hire the right individuals, the ones that can truly add value to our business and to deliver a service to our clients that goes beyond their best expectations.”

Investors such as Nicholls will be helping them all the way.