Chinese e-Wallets – Alipay et Wechat Pay – have paved the way for a new way of saving. No longer as a banking act but as an act forming part of the consumer day to day journey.
This new model of savings distribution,seamless, more fluid, faster, or even more enjoyable is going with the development of technical solution for consumption and payment. And with it, the opportunity to grow savings and reach a population less aware in finance or technology,unlike the Millennials.
As the World Retail Banking Report 2019 advocates, the bank must become 'invisible'. Customers want services integrated into their lifestyles and the tools they use daily, with minimum possible friction in their journey. Savings should certainly be the same.
Asian e-Wallets: the founders
Mobile platforms are becoming an increasingly popular way for Chinese retail investors to access and purchase fund products. The percentage of investors surveyed who purchased funds using mobile devices rose to 68.8% in 2017, compared to 40.8% in 2016 [1]. Ubiquitous mobile payments apps are playing a major role in this mutation: allowing users to make free-of-charge direct payments or on-demand redemption into clients bank account from their MMF, the two dominating Chinese e-Wallets —Alipay and WeChatPay— have attracted 114 million new investors and generated 95% of China’s MMF growth in 2018.
They are now targeting the mutual funds market at large by collaborating with fund firms, in the aim of attracting a large number of younger retail investors who have become an essential pillar of China's investor base (for further information, see article on Big Techs section).
In Indonesia, e-commerce platforms and e-wallet service providers have teamed up with online investment suppliers to allow consumers to deposit their idle money into money market funds or, more recently, to invest in long term mutual funds.
Bukalapak, an e-commerce firm which currently has 35 million monthly active users across Indonesia, has partnered with investment platforms Tanamduit and Bareksa to create BukaReksa (which means ‘Open Investment’), allowing consumers to subscribe directly on the website to 21 mutual funds provided by nine asset management firms. Bareksa also partnered with the online payments app OVO to offer fund investments via its mobile wallet service. OVO is notably the digital payment solution of Grab and e-commerce platform Tokopedia with its 10 million shoppers. With this strategy, Bareksa –that distribute seven Schroders products — now gathers 30% of Indonesia’s mutual fund investors.
Saving while shopping
A new trend is consolidating throughout the world (use cases in the US,South East Asia, Oceania): that of reinventing cash-back by"redistributing" this cash directly and seamlessly to savings products. Long confined to bank savings accounts or MMFs, the system has gradually been extended to long-term savings solutions. The preparation of life goals is therefore an integral part of the act of consumption and makes it possible to build up savings without thinking about it.
Fidelity has partnered with VISA to launch the Fidelity Rewards Visa Signature® Card, which offers a 2% cash-back on every purchase, with no annual fee. The originality is that the cash-back rewards can be deposited not only into banking account but also into one of five Fidelity Investments accounts including Retirement, children’s College Savings Plan or robo-advisor Fidelity Go.
With a “set it and forget it” solution to investing, this Fidelity Card offers the opportunity to save and achieve goals by funding investment strategy determined when opening the account. With VISA branding the card is compatible with Apple, Google and Samsung Pay and with Microsoft Wallet. In 2016, 550,000 cardholders saved an average amount of $1,500.
More recently, a New York-based finance and investing startup, Stash Financial, has launched a “stock-back” feature on its debit card. When users spend at companies that have stocks listed on the platform, like Walmart, Amazon, and Starbucks, they are rewarded with fraction of those companies’ shares. Thus,consumers can own what they buy and a portfolio that reflects their individual spending habits.
The rewards start at 0.125% of spending and could reach as much as 5% depending on deals and promotions. For purchases in unlisted companies, like a local restaurant, customers earn shares in a Stash-approved ETF: Vanguard Total World Stock ETF. As of July 2018, Stash had approximately 2.4 million users.
In Asia, Rakuten has recently made a link between its ‘Super Points’ loyalty program and its robo-advisor Raku-Wrap, by allowing shoppers to use their rewards to buy investment products.
Micro-investing:simple as a rounded amount
Specially designed for Millennials, who just want to get invested and get on with their lives, new apps have emerged to simplify and automatize investment. They deploy Richard Thaler’s Nobel Prize-winning “nudge theory” to round up the digital spare change from investors’ purchases — meaning the cost of a €2.50 coffee can be rounded up to €3, and the 50c difference invested in a portfolio of eye-catching stocks.
Acorns is the most famous and the US fastest growing micro-investing personal finance app that allows customers to automatically invest spare change. The app, linked or not with a debit card, also offers a cash-back program with 200+ partner brands. Acorns has signed up 4 million investment accounts, which average size is about $500. It also offers an automated retirement account (subscribed by 250,000+ Acorns ‘Later investors’) and educational content.
More than $1bn has already been invested in one the five robo-generated ‘smart portfolios’ structured with ETFs from BlackRock and Vanguard.
In May 2018, BlackRock and Acorns announced a partnership in the aim of developing tools to improve the savings and investing behaviors of Millennial and Gen Z. BlackRock led a $50 million investment round in the Fintech and got an“observer seat” on the personal finance start-up’s board.
“By deepening our understanding of how customers use investment technologies, we can apply those learnings across BlackRock to evolve the products we build for our distribution partners. Through micro-behaviors the next generation of investors can take achievable steps towards building their well-being.” (BlackRock’s COO)
Other Fintechs have also developed this feature around the world : Moneybox in the UK, which offers its 150,000 users to invest in Stock & Shares ISA, Lifetime ISA (home) and Junior ISA (invest towards child’s future), or, Raiz Investment, an Australian startup which have boasted more than 175,000 monthly active users and have recently obtained access to Indonesian market at the same time as a license to distribute mutual funds. In traditional banking, KBC Belgium offers similar sparing service, subscribers’ savings being invested in a KBC mixed asset fund of funds.
Apps that make goals reachable through small steps
As presented in a previous article, Goals-based Financial Planning is a virtuous approach — for both investors and advisors — to build up a financial wealth, but it is dedicated to High Net Worth Individuals with a high level of minimum investment. However, variants aimed at younger customers have started to emerge.
The most emblematic one is the Swedish app, Dreams, which uses artificial intelligence and cognitive behavioral techniques to encourage users to save and invest money, and in a playful way. Since its inception, in 2016, the company has attracted 300,000 users - the equivalent of 14% of the total 20-40 year-old target group in Sweden, who have already reached 460,000 ‘dreams’. The company claims that users typically save€135 more with Dreams every month than they did with their banks.
In January 2019, AXA IM took a 10% stake in Dreams and will become its exclusive provider of mutual funds. This partnership marks the beginning of a phased roll out of the platform across continental Europe,including German, Belgian, French, Italian, Dutch, and Spanish markets. The two companies will also run an innovation lab to conduct research on Millennials’ savings and investment habits.
To help customers achieve their goals, other investment apps have the ability to analyze spending habits and automatically save money. Chip, a UK app which is partnered with major banks like Barclays, HSBC our Lloyds, already has 20,000 users. Tandem Bank, a neo-bank with 500,000 customers, has just launched its AI-driven ‘Autosavings’ solution. In France, Bruno, an intelligent virtual assistant installed in Facebook Messenger, constantly monitors the state of its 60,000 customers’ personal finances and suggests them every week an optimal amount to put in reserve.
A nascent app-driven savings ecosystem?
Apps, or broadly mobile platforms, open a new way of savings for retail people who haven’t enough money to invest to interest traditional funds distributors. Conversely, retail people are now able to access saving and investment solutions outside of a banking system in which they do not trust and they are not familiar. Moreover, by integrating savings in consumers’ journey, these digital solutions make savings act enjoyable, natural, invisible and trivial.
In this new forward-looking process, distribution is short-circuited by app providers and financial institutions only play a role of supplier, as a custodian or a fund manager… function that large technology companies have started to integrate. The challenge for the fintechs remains nevertheless to integrate all the spectrum of services(aggregator, funds comparator, etc.) within a unique space to offer a one stop shop solution for customers, as some financial marketplaces have begun to do. For asset managers, to avoid being completely excluded in the future, partnerships have to be studied in the present.
Author: Pascal Buisson - May 2019
[1] Source: Asset Management Association of China
