Fintech start-ups have been heralded as revolutionary to the banking sector in recent years. But is the David-and-Goliath analogy really an accurate one or are we poised to see a more collaborative environment instead? Xiou Ann Lim talks to three start-ups in Asia to find out how private banks can stand to benefit from their offerings – and what they’ve missed
The private banking industry – as with most other industries – is being tested through the age of disruption. It is imperative for private banks, however, to face the challenges that come with it because the industry has long been riding on the premise that it offers clients high-touch personalised services.
Painful or not, the industry is facing up to the realities of these changing – with clients demanding digitised services and 24-hour accessibility. Taking advantage of this digital shift, however, are the fintech start-ups.
Agile and attuned to the needs of clients, they are offering cheaper and more autonomous means for clients to manage and grow their wealth. How are these start-ups identifying gaps within existing systems and processes to serve clients better and what can private banks learn from these smaller players? PBI spoke to three fintech start-ups in Asia that are offering novel solutions.
The overview: Unlike many founders of fintech start-ups in Asia, Canopy’s Tanmai Sharma actually has extensive experience in the financial services industry – having spent 15 years at Deutsche Bank. He left his role as managing director with the bank in 2013.
Sharma’s business model is based on the fact that private banking customers diversify their wealth across multiple banks. "This seems to be the rule with almost no exceptions. In fact, we now refer to it in jest as ‘Newton’s law of High Net Worth’ in our office," he says, before adding that they see a minimum of five and a maximum of 24 banks per customer.
The problem: Although wealth is distributed across multiple banks, no single bank – irrespective of how sophisticated or comprehensive their own website or offering is – is in a position to aggregate across banks. Private banking customers have to log in to multiple websites and manually calculate their net worth. Assessing anything more complicated – for instance money made across banks – will be even more tedious. According to Sharma, almost all high-net-worth individuals (HNWIs) currently use a manual solution – typically by hiring people to aggregate data across banks and input them into Excel (or Excel-like software).
The solution: Recognising that the market required a service that is able to aggregate and analyse data across banks, Sharma and his team developed Canopy to reduce the time required to produce better analysis. "We actually stumbled upon this idea while developing a slightly different solution for our customers and then pivoted based on customer feedback," he shares.
Canopy aggregates a customer’s assets across all banks and asset classes (including real estate, art and other non-financial assets) to provide an analysis in an easy-to-understand format. He adds that their focus is to be a "decision support system" so that their customers can identify which investment strategies work and which ones need improvement.
The technology: Canopy is able to take in raw data from the customer in its existing format – PDF files of bank statements or spreadsheets, for example – in addition to data feeds, where available.
In the pipeline: Sharma and his team are introducing a greater degree of customisations in the next few months, in addition to a larger group of banks to be covered. They are also launching a pure software-as-a-service (SaaS) product targeting wealth managers, where customers do their own upload and analysis. This is in addition to the launch of a live pricing platform for derivatives later in 2016.
The overview: Call Levels refers to the market term ‘call me when the price reaches this level’, which was something co-founder Daniel Chia used to set with his salespeople during his days as a hedge fund manager. More often than not, it continues to be a manual and expensive process within the industry and hardly provided to non-premium clients.
Growing this concept further, co-founders Chia and Cynthia Siantar developed a price alert platform for multiple assets to provide autonomy to investors watching the markets. Available for free on both Google Play and the App Store, users only need to register at no cost if they want access to track price levels.
"This promise to focus on one problem and deliver a comprehensive solution continues to drive our commitment to fintech innovation – and we are encouraged by the fact that our service has seen close to 100,000 call levels created to-date," Siantar says.
Call Levels was incorporated at the end of 2014 and the first iOS version was launched in November 2014 after two months in development. The app launch time was notably fast, as Chia has extensive experience in building systemic learning trading models and execution systems for global markets.
The problem: Chia and Siantar noticed that despite innovations powering finance, many investors simply don’t have convenient access to reliable, real-time monitoring for their assets on their phone. Rather, they depend on their relationship managers (RMs), salespeople and brokers to watch the market and prices for them, and to manually call or text them when their levels are reached. Alternatively, they have to formally sign up for online trading or brokerage accounts, which are optimised for transactions but not notifications – especially for mobile devices. In addition, price alerts provided by brokerages come in the form of ‘stop losses’, which are automatically executed.
The solution: Chia and Siantar developed Call Levels as a single solution to these issues – alerting users on price movements, thereby giving them the advantage of making the decision to execute a trade or not. This service also circumvents the issue of whom to alert first, benefitting both firms and customers – who can then form a consolidated quick response and be given the opportunity to extend or hold trading activity at a lower cost.
The technology: Call Levels is built and optimised on the cloud – making the service easily scalable – focused on alerting users on price movements and giving them the advantage of making a timely decision to execute the trade (or not) via push notifications on their mobile devices. The alerts are also available on Apple Watch. The data on the platform is sourced directly from the exchanges, with patent-pending technology powering the Call Levels internal monitoring system.
In the pipeline: After experiencing user growth of over 400% in the past three months, Chia and Siantar received feedback from users on adding more assets and markets. Hence, they are currently focused on expanding the range of assets via partnerships with large financial institutions in Asia and on building more in-app services that can connect and inform users the moment their alerts are triggered.
The overview: Co-founder Frank Troise and his team of founders have deep backgrounds in proprietary trading and quantitative analysis. Having been immersed in it throughout their careers, they only began focusing on developing the external commercial product in the past three years. The premise of Replicas is simple – to make mutual fund management free.
The problem: Investors – especially those who are new to investing – spend a lot of time and money understanding and tracking their investments. This can be solved by hiring professionals to manage their funds, but this exercise also consumes a considerable amount of resources.
The solution: Financial institutions can now create any type of product for effectively no fees. Thus sub-advisory fees, which can typically be 0.5% as a cost to the institution, are now zero. These institutions can now pass this savings on to clients and investors.
"Since we can replicate any type of fund, we provide financial firms with a tremendously powerful data source," Troise says. He also adds that they provide 100% transparency into the holdings of these funds, which current mutual funds do not provide. This solution is useful for money managers, analysts and individual traders – as a large robust data set of positions across all asset classes and investment styles is made available to them.
The technology: As part of their risk management, Troise and his team had developed tools to help them hedge intraday and interday exposures for large multi-billion dollar portfolios. Those algorithms became the basis for the technology of Replicas when they applied it to replicating mutual funds. "Our tracking error is plus or minus three to five basis points. The only comparable product is in hedge fund replication (in Beta for us), where tracking error can range from 500 to 2,000 basis points," he says. "Relative to fund fees of 100 to 300 basis points per annum, our tracking error (again it can be plus or minus) creates major cost savings for the investor and the compounding effect on a portfolio is huge," he adds.
In the pipeline: For retail investors, Troise and his team are developing financial apps to make it easy to create a portfolio of free mutual funds with just one swipe on a mobile device. This year, their primary focus is servicing their institutional and intermediary clients in Asia, EU and the USA. "Our product mix will expand accordingly to local exposures (i.e. a Japan Replica portfolio) and to thematic portfolios (the best technology ideas worldwide)," he shares. Late this year, they intend to roll out "Free Mutual Funds" to the consumer via a mobile app.