WealthTech Insights #12 with Florian M. Spiegl: Robo-Advisors and Active Investing

Vasyl Soloshchuk

Florian M. Spiegl
Today, we spoke with another subject matter expert, Dr. Florian M. Spiegl.

Dr. Florian M. Spiegl
Co-founder and COO of Hong Kong-based FinFabrik.

FinFabrik develops solutions for capital markets companies, focused on retail trading. The company offers modular technology to both pioneers and mature, larger companies to help them scale their businesses. Florian has a successful track record working on tech topics for the Boston Consulting Group (BCG), Credit Suisse and by founding and running several startups before.

We discussed recent industry changes and Florian pointed out some players that might shape the niche in the future.

Q: Please tell us more about your background. How are you related to the wealth management industry? What trends have you observed to be prevailing in the wealth management niche in the past few years?

Florian: Two things came together for me: first, the financial services side and the complexity of it; the product, the processes that are involved in it; and second, the innovation—the entrepreneurial side of it. I think both sides collided in a way in my story. In terms of my background, I come from the business side and I have a PhD in political sciences, so my perspective is more of a macroeconomic one. I started out working in strategy consulting for BCG. I covered a range of industries including financial services, as well as technology projects, with large tech companies globally. I always had these two sides that were just not commingling in the beginning. As a student, I’ve been an entrepreneur. Initially not a successful one, though. FinFabrik is my fourth company. Two of these four companies have failed and these failures were  important to the entrepreneur I am today. After my time in consulting, I moved into financial services with a focus on digital wealth management.

I ultimately worked at Credit Suisse in Switzerland in the digital private banking function, which was back then a global team and covered most of the interesting things that Credit Suisse was doing on the digital side. It was literally bringing the digital world into this  traditional private banking ecosystem. Credit Swiss is a traditional institution dealing with digitization, so it was quite an exciting time. Of course, I was missing that second aspect, the entrepreneurial spirit. A couple of things happened. I exited the third venture, which worked out fine, and quit Credit Suisse. I took some time off and moved to Hong Kong where I now live with my wife. After three months and a good amount of brainstorming and experimenting, I found my co-founders and we decided to start a company. We had some capital to get started and acquired another startup early in. For me, that finally merged the two sides: the entrepreneurial side and the wealth management, the traditional private banking side.

 

“We cannot fix the way a company operates, the culture that they have as a bank, just by having an innovation lab and a chief innovation officer to accelerate it. It’s a question of a deep cultural change that needs to happen for a bank to be really competitive in the digital space.”

 

Q: Does Credit Suisse have an innovation lab? Because as I see so many banks starting these separately from their in-house IT operations.

Florian: These days, every large bank has something in that space. The general sentiment I have is most of those labs are more of a marketing exercise than a real unit producing results. It is a bad sign if they run on a budget that comes from the marketing side of the banks. That says a lot about the actual impact that these programs have. I think we are beyond the hype cycle of it. Serious engineers rarely do hackathons anymore because they’ve done it and they’ve seen that most of these organizations were not always serious about doing something tangible together. Even when they are, they’re still hindered or they’ve been slowed down by being a large organization.

I can give you another example. If there is a chief innovation officer in a bank, they unfortunately too rarely have final decision rights. Or they don’t have a sufficient budget of their own to try new things, experiment. They cannot easily say, “I want to take more risk. I want to work with startups.” It was similar with Credit Suisse: they have great ideas as they have highly experienced, forward-looking people. But these still need to be approved by a broad set of stakeholders. These are typically not so much risk-taking or forward-looking and innovative projects don’t make the cut often enough. I’ve seen that in multiple banks. The short message here is that we cannot fix the way a company operates, the culture that they have as a bank, just by having an innovation lab and a chief innovation officer to accelerate it. It’s a question of a deep cultural change that needs to happen for a bank to be really competitive in the digital space.

I saw that from the inside of Credit Suisse, but I’m also seeing it now as an entrepreneur. We work with some large banks, but they’re slow and decisions take a long time. It’s complex. It requires some time for them to change as well. The good news, though, is that they see they need to change. Every board of every meaningful bank realized by now, “Okay, we need to do something. We need to move faster, hire different people than we did in the past. Change our culture.” But it’s like a huge tanker that takes time to correct course. While things are changing, we’re still not there for the large banks.

Q: I visited Money20/20 in Las Vegas last year and saw many different banks and also startups that were interested in discussing opportunities to cooperate. So banks are trying to find ways to work with the FinTech startups to leverage these new services they can benefit from. What do you think?

Florian: I think the sentiment also changed from this whole disruption discussion to much more collaboration on both sides. Banks need to consider teaming up with startups. Startups, in turn, realize how hard financial services as an industry is. Here, distribution is really hard and costly but if you can have a large partner, it changes everything. At FinFabrik, we encourage that cooperation because we know it’s a win–win that you can’t create if both sides are not really committed to it.

 

“The power is shifting to the technology companies providing the algorithm and management services, which is completely new and seemed unrealistic 10 years ago.”

 

Q: Could you please name a few significant changes that have happened in WealthTech in recent years?

Florian: I come from a macro perspective of things. In fact, for me it’s a bigger change that really starts with the notion that FinTech is nothing new. Technology has been in financial services for a long time. It’s now a different type of FinTech. You can go back to the 1880s and say the telegraph was a big move in financial services because all of a sudden you could send money electronically. Then you have different waves that followed and shaped the industry. You had the 1980s, with the core banking systems, halls filled with big mainframe machines, and then came modern FinTech, which arrived with the Internet. That was a new platform, a new distribution channel. Suddenly you had PayPal and e-brokers, etc. New players appeared. What we call FinTech today is another wave of contemporary FinTech that started with the financial crisis. It was 2007, 8, 9 when several things happened.

First of all, it was a crisis where the most important driver behind modern FinTech was people realizing they were not very high up in their banks’ priorities list. They had a problem with that. It’s like, “I actually deserve to be number one on their list,” and that’s a huge gap where startups poured in to close that gap; and startups being 100% laser-focused and client-centered in using technology to build client-centric solutions.

robo-advising

The second element that comes to it is just raw, new technology. You know, blockchain, artificial intelligence (AI), and, maybe even more importantly today, mobile. Everything is happening on mobile driving that change, especially when you look at Asia where the first computer people used was a smartphone, which they do all their banking from. All the wealth management happens on mobile. You see that not only in China, but in Southeast Asia overall. So it’s a different kind of FinTech and WealthTech, with different drivers behind those. It opens fields to new players. Asia is leading here as well. Their own distribution has hundreds of millions of users on a platform, and then they say, “Why shouldn’t I offer financial services?” Alibaba and Tencent are great examples.

I think the difference with WealthTech is that we trusted the beginning of it because it is  complex. It’s a trust-based business, and people still tend to think that if a bank is an old one, I trust it more to manage my money well than I do a technology startup. Now we’re seeing a change, especially here in Asia. People are actually saying, “I don’t want to hand over money to Bank of China; I’ll hand it over to Alibaba instead because the latter is big and I trust them.” The power is shifting to the technology companies providing the algorithm and management services, which is completely new and seemed unrealistic 10 years ago.

 

“The truth is most robo-advisors are not very sophisticated and they’re not robo, but it’s early days. Some of them will die; some of them will survive and move up in terms of complexity of wealth managed. This is where machine learning and AI come into play.”

 

Q: New and innovative companies in WealthTech are becoming increasingly oriented to end investors and the B2C market. These companies enable direct investment. Why do you think more companies in this niche are focusing on this B2C market, and do you think that B2C will totally replace B2B wealth management solutions?

Florian: The short answer’s no. Even in the short run it will be in specialized niches. For example, younger people don’t have a lot of money or complex wealth to be managed compared to older generations. We see that changing but the niche is still tiny. If you look at the global wealth it’s still a small slice of the whole pie despite steady growth. So currently that is still a niche play on the B2C side. However, I’m convinced that in the medium to long term we will see the shift with more wealth managed by machines only, without a lot of human interaction, or by bionic advisors, the combination of humans and algorithms.

It will take us a few more years to get there. Today, anyone who has worked in wealth management understands that what is called robo-advisors are rather simplistic. I can run a B2C robo-advisory on Excel. Most of these platforms have predefined questions and then put you into a category—for example, one of five buckets. Below each bucket there is an asset allocation with predetermined instruments. So all I need to do is to put you into the right bucket, ask you how much money you want to invest, run the percentages, and then I buy these instruments for you via a trading desk.

The truth is most robo-advisors are like that; they’re not very sophisticated and they’re not robo, but it’s early days. Some of them will die because the underlying economics do not work, particularly around client acquisition costs. Some of them will survive, growing to significant scale, and will move up in terms of complexity of wealth managed. This is where machine learning and AI come into play. The challenge nowadays is that an individualized advice has to be highly manual because, if I’m your relationship manager, I have to sit down with you as a person and understand you well. In the future, data will replace that, and we have powerful algorithmic engines based on machine learning that can actually make sense of that data and construct the individual portfolios.

At FinFabrik we bet on that development to happen, because with that new technology you’re able to do several things. One thing is I build a bucket just for you. There is no “five buckets” as such, but there are as many buckets as clients. Based on data in your profile I can create an individual cluster and completely tailor that portfolio to you. The second thing that will happen is that it will come at almost zero additional cost. We’ll see a lot of individualized portfolios on the platform. In this context, we believe that execution of the related trades will play an important role. If you want to completely individualize portfolios, you cannot use just five ETFs as many robo-advisors do but you need a broad set of instruments. Efficient management of these individualized portfolios requires two things: automation and effective execution.

We think that is a few years out in terms of AI in wealth management driving the entire service stack, but we’re seeing the early days of that development and robo-advisors are really just the first few inches on a thousand-mile journey.

In the long term, I am deeply convinced that most of it will work without human intervention because today, already, if I’m your relationship manager and you are my client, most of what I tell you I already take out of the system. So the key is the human relationship. The data shows at least that clients don’t care as much about whether I’m sitting down with them every quarter. They care more about the opportunity to check all of that on the bus on the way to work, and they don’t mind that it’s a machine (not a human) telling them all of that. That massive shift will happen because millennials will be the largest holders of wealth globally. They have different preferences on how their money is managed and that also relates to the human element in the equation. There are different opinions in that regard, but I personally think we will tilt more to machine interaction and move away from pure human-to-human, as that is too inefficient.

 

“Algorithms behind the AI are similar to recommendation engines we see in e-commerce today. When I see your historical data, I can recommend investment products that your money should go into.”

 

Q: Let’s talk a bit about this AI and Big Data. What kind of data do you think we should take into account while calculating risk tolerance and asset allocation strategies based on algorithms?

Florian: I think in terms of profiling, at FinFabrik we call that full-stack AI in wealth management. You have different layers that all are powered with a different kind of AI. In our case, we are looking at six of these layers. I’m just going to mention a couple of them as an example.

One is client profiling, which means I need to understand you as a human being very well. I need to understand your past, your situation today, and especially your aspirations, your dreams for the future, because money is part of all of that. If you talk about data and context, these really add to the process in several ways. First, all the data that you can make available to me will be meaningful. If you look at, for example, credit score and how that works today, you give me access to a data set.

I’ll give you the example of WeBank Tencent in China. They issue consumer credits in less than one minute because they ask you, “Do you give me permission to look at all your data on the Tencent platform?” for example. Then they use these significant data points to essentially calculate your credit worthiness within seconds. They give you a rating and then the amount that they can provide you with and the actual interest. In my mind, it will also work similarly in wealth management.

I can give you another example. In the West, I ask you, “Give me one minute to access all the data and everything that you do on Facebook.” There is a lot of research today presenting the fact that we need little data from Facebook to identify what kind of person the profile owner is. Provide me with access, even just for a minute. My systems are not monitoring you but just taking a snapshot to understand you as a person. If you give me access to your Facebook, I will probably understand you a lot better than most of your friends because I have a  broad view of you. That, in my mind, should be enough to arrive at a basic starting point in that situation.

Then the second part comes—a custom-tailored part where I ask you additional questions, which I may not be able to read out of the data. These questions could be about your future plans, in order to confirm some of my assumptions. During that second part of the evaluation we still have a conversation, but it will be targeted. That’s one layer—understanding you as a client very well. These two steps form the first layer.

In terms of the technology, algorithms behind the AI are similar to recommendation engines we see in e-commerce today. They collect data and look at you; they want to know what you bought in the past so they can compare your profiles with other profiles. Then they decide whether their product is the right choice for you. It’s similar when it comes to investment. When I see your historical data, I can recommend investment products that your money should go into.

The second layer is an investment engine. We have a product called AlgoFabrik, which is an algorithm-trading platform that makes a detailed investment decision, finds the right instrument suitable for the client, with the right amount at the right time. That will be controlled by a different kind of AI, which will probably be an RNN—recurrent neural network, which works with time series and is able to predict a simple development step: is the stock going up or down. Is it a buy now or sell now? It is a different kind of AI. There will be another layer. First, to have general portfolio construction and day-to-day investment management of that portfolio, which we believe will be largely automated.

You can look at the hedge fund industry here, where this is already happening. This year was a strong year for quantitative investment in the management industry. There was an outflow in traditional hedge fund industries and significant inflows in all the quant investment funds. That’s why that layer for us is clearly going to happen.

One more layer is the whole communication side. We will have a chatbot, a natural language-understanding, NLU/ NLP layer, which is again a different kind of AI. This layer will automate most of the simpler interactions with clients. Essentially this will be similar to Siri but it will be talking about your wealth with you.

These are just three examples that, when combined, will form a broadly automated wealth management setup powered by data and specific algorithms for each of the layers of that stack. Human to human interaction will still be relevant for specific questions and for the relationship with clients.

Q: Is FinFabrik a framework on which to build different kinds of solutions?

Florian: We are on our way to building the entire stack, but as a still fragile startup we bring every single element of it to market separately. We know it takes a long time to build the entire stack, and you need to monetize the different elements. The execution layer comes first, which is trading and buying instruments in the market. Then we have brought to market the B2B brokerage platform, AlgoFabrik, which is an investment layer.

As a company, we build investment management platforms for the financial services industry in the broadest sense, so we are a SaaS B2B company. Maybe one day, if we have a great opportunity to move into B2C we will do it, but in terms of our DNA and the plan we have for now, it’s the B2B niche where we focus on collaboration and empowering players, both traditional and new. The technology companies that are moving into financial services are also our clients. They come to us and say, “I am a tech company and we are not experts in financial services,” and they use our technology to bring, for example, brokerage services to their clients.

 

“It’s much easier to do quarterly rebalancing in terms of the technology that you need to build than to create an active investment style.”

 

Q: What would be a more efficient way to change the schedule of rebalancing for wealth management solutions?

Florian: If it makes sense and if the system picks up on signals that validate rebalancing, you should do so every second. You should have an active investment style if there is a demand for it. That’s actually one of the things that we have discussions around, as the current trend is clearly towards passive investment. You put your money into three ETFs and you leave it there for 10 years. We think there’s a significant upside to adopting a more active investment style and that the pendulum will swing a bit back into that direction.

Even the machine learning technology that’s put in place today with hedge funds is very active, and trades actively to generate alpha and beta. We think that should be part of the wealth management solution. Why is it not the case today? I think it has mostly to do with the price. For most clients, rebalancing every second today comes at a high price driven by execution costs. We already own the execution layer. This is why it is important to us because we control the price of the execution of every trade, which eventually is close to zero. Our stack can offer active rebalancing if that’s something that the client wants and if it is validated by the data in the system.

We are aware that this is a different kind of thinking compared to what you are seeing now in robo-advisors. It’s because of costs and also simplicity. It’s much easier to do quarterly rebalancing in terms of the technology that you need to build than to create an active investment style. I don’t know whether rebalancing is even the right term, but it is virtually reacting to ongoing events. To give you an example: let’s say I found out that you own an iPhone. You do a lot of searches about Apple. So I’m assuming that Apple is a brand that you like. That should be an important part of an investment decision because if you look at research, people care a lot about what their money is invested in, especially young investors. We want to make meaningful investments. I suggest Apple as an investment. I also think from a quant side it’s a good investment. One day something happens; for example, the latest earnings release is not as great. You want your system to take immediate action without waiting for the next quarter. Being able to be active and prevent the larger drawback is important. If there’s a meltdown, I sell everything within seconds and you have all cash in your accounts so you prevent that money from being part of that setback.

Modern portfolio theory only works if you hold the same portfolio for 10 years and you go through all the setbacks, you’re still okay. Nowadays, clients don’t want to have their money sitting around for 10 years, so we need to manage it much more actively and that requires a much more sophisticated investment engine and rebalancing.

 

“Explaining the instruments that you’re using to invest is crucial. If you as a wealth management provider can’t explain that anymore, another market player might have a competitive advantage.”

 

Q: Continuing this topic, we mainly associate the wealth management industry with a chance to secure somebody’s retirement; players in this niche used to be 30–40 years old or older. As you said, we have observed the potential audience becoming younger, and we have increasing numbers of millennials starting to invest early. Do you think this is happening because of technology (because we have more and more robo-advisors) or because of something else?

Florian: First, I agree that we are seeing a shift towards younger people thinking about these things earlier. I think that the traditional pension systems globally face significant challenges. The sentiment is shifting towards the individual being responsible for their own financial well-being long term. That was always more the philosophy in the US, but we also see it now happening all around the world. Young people are increasingly aware; they think, “The earlier I start thinking about that, the better it is for my long-term financial health” That’s one driver.

The second driver is people realizing that if they leave money lying around in a standard bank account, it will not grow significantly. This is where robo-advisors come in. It’s quite convenient and straightforward to make money using them. Even if huge returns may not be achieved, something is still better than nothing. I think new technology broadens horizons for young people and makes them do something about the money they have.

Now, the second important point that you made is about education. This is something that gets forgotten. If the machine comes back to you to reconfirm that you want to close all of the Apple positions, that is not enough. I want to tell you, “I want to close all your Apple decisions because…” and if you hear these things over and over again, you don’t need to sit down and read a book or study that. You learn over time how investment decisions are made. Then, in addition to that educational material, you could offer a platform that can tell people what an ETF and the money markets are. These kinds of questions should be part of the wealth management offering.

Whenever I speak on wealth management, I try to explain to people two important elements that often get forgotten. One is that people want to be understood. This is part of analyzing data and understanding who you are. The second part is people want to understand what happens with their money (especially after the crisis). Explaining the instruments that you’re using to invest is crucial. If you as a wealth management provider can’t explain that anymore, another market player might have a competitive advantage.

Q: Many companies are trying to apply blockchain for different use cases in FinTech. The one that has been successful is cryptocurrency, but we really haven’t seen other use cases—successful ones. Perhaps in a few years we will see something, but not right now. How can we apply blockchain to wealth management, and what use cases can you name?

Florian: My general answer to that is we are still overestimating what will happen with blockchain technology in the next two to four years. I also think we are still underestimating how it will change the infrastructure of financial services in 10, 15 years. I think it has the potential to completely change the industry in terms of the infrastructure and the rails that financial services run on. We aren’t yet seeing the concrete use cases or life-changing use cases that were expected just a few years ago.

However, I think there is potential for seeing early signs of blockchain technology being used beyond cryptocurrency in wealth management. One example is everything around client onboarding. This has to do with regulatory relevant activities such as anti money laundering or know-your-client and that is still underestimated as an important part of the client–service relationship. Imagine the first interaction that you have with me as a provider. It is crucial for your impression. We can use technology space to open an account quickly and easily.

The reality today though is a lot of the robos are restricted by regulations that make the onboarding process rather painful. In a lot of cases in Hong Kong, it has to be based on paper. Clients cannot believe it actually takes two weeks and has to be paper-based with a wet signature on it. I think it’s  important to get the right start in that kind of relationship and blockchain will play an important role in that. It’s about the client ID, storing of client information and other use cases. Everything around onboarding has to happen within a few minutes in a few simple clicks and identity is central for that.

The second area, which is more specific to the capital markets technology space is that we, in FinFabrik, are further down in the value chain in trading and trade settlement processes. This still works in the same way as a few decades ago. Traditionally, a trade settles t+3, t+2 is now a new standard and seen as an achievement. We have self-driving cars, but we have to wait three days for an electronic transaction to settle.

blockchain

Blockchain will completely change the post-trade world. A trade will settle in real time, as it should. There will be no settlement risk any more because it will be t+0. All this large machinery that we now have in the back of all trading activities, which is attached to wealth management, will go away.

The next ten years will bring tremendous changes in the financial infrastructure, but we see things in one, two, three, four years in specific areas, such as client onboarding and trade settlement where we will use blockchain. Soon, hopefully, we will be beyond the hype. No one today tells you I’m using this Internet protocol; they talk about the solution that we build on the Internet. No one cares about the underlying technology and I expect the same to happen with blockchain.

Also, it will only be used when it really makes sense. That’s another problem we have today. People use it because it’s kind of sexy still but in a lot of cases it’s not the best technical solution. You can just use a  fast database for a lot of those things. It will be a sobering process, and only then we will see use cases that can really add value.

The whole cryptocurrency space is separated from these use cases. Personally, I think that the big game changer will be the crypto RMB (Renminbi). China will move part of their circulated currency into crypto. From everything we hear from our partners that may well happen sooner than we think. Imagine a superpower issuing their own cryptocurrency, alongside their fiat currency. It will change the entire space and its dynamics.

Q: Will there be enough liquidity for the Chinese government to start using cryptocurrency for reserves?

Florian: The People’s Bank of China has explained how they will manage the money supply of the fiat currency to cryptocurrency, how they will introduce that into the market, and what the impact of the whole exercise will be. Official papers were published on that.

There are different ways to force that currency into circulation that we can imagine. One could be to make some of the largest players, such as UnionPay or Alipay, accept only crypto RMB for tourists that are spending money abroad. That would automatically put it into circulation and the crypto share of the entire money supply can be gradually increased from there. You experiment and see how that works out.

If you move that to a significant level, there are fantastic things that you can do. It’s live monitoring of the economy because you don’t have to wait for a quarter or two to get economic data, as one example. You can check those insights in real time. Or, think about trade finance or FX money flows. It opens a lot of interesting possibilities.

 

“All the robo-advisors that we see in the West would not be able to compete with Chinese solutions because they are just too small.”

 

Q: Do you think that the collaboration between these software developers and capital market experts is efficient, or is there a knowledge gap to close?

Florian: The good news is that we are seeing the different sides now coming together. It’s a process of education on both the sides. Financial services is a complex field and if you’re a kid that only knows technology well that might not be enough. Financial Services are complex. The same is true for people in banking. They need to learn about technology. Managers today may not have to code but it helps to understand the difference between JAVA and C++ and to know how agile development works. Education is much easier to access today, especially on the technology side. Even I took a data science course online, and it was fantastic. On the engineers’ side, I think it really depends on which field they’re in. Talking from our own company’s perspective, we train our engineers to understand capital markets and the workflow behind it. Even though they focus on building that powerful platform, they need to understand the entire field because that makes them better engineers. They think more holistically.

From our perspective, it is in the company’s best interests to also educate engineers on the financial services side about the product. I think it is a two-way street, an exchange between the two sides. From all I’m seeing, both sides are open to moving to the next level in terms of understanding the industry better, both tech and fin aspects of it.

Q: Can you highlight a few industry-leading companies?

Florian: If you look into the West – and talking about Robo Advisory, I would say one of the leading companies today is Betterment. The way they evolved into what they have today, and also the plans they have and the education that they bring to the field are important. They also do both B2B and B2C, which is interesting.

Beyond that, and being a Hong Kong company, I’d say China is one of the leading FinTech markets in the world for various reasons. Most of the leading FinTech companies are actually more tech companies. If I were to name a few, it would be WeBank from Tencent, who are reaching hundreds of millions of users that eventually will invest all or most of their money with them. They are getting started just now. Ant Financial is another company to watch out for; they think in platforms and start with simple products, to then quickly move up the complexity ladder. People can move their money into that platform in real time. There is no onboarding because they are already clients of Alibaba and the latter knows them well because of what they’ve done on the platform. They have all the data about them that they need. It’s about data and scale. This will completely change the industry and all the robo-advisors that we see in the West would not be able to compete with Chinese solutions because they are just too small.

Another example in the same context is Yu’e Bao, the largest money market fund within six months because Alibaba decided to offer their clients a different kind of investment. It was one single fund but its clients had better returns than people get out of the bank. They could shift money with one click into that fund and worked because everybody said, “I have my money in my Alipay account anyway and with one click I can invest it to earn higher returns. With the another click, I can move it back into my wallet.” That was an example of a disruption at work and that is just the beginning. We will see Alipay, Tencent, WeBank and the sorts changing the industry.

I mention that well-known example because a lot of people still don’t see it. Especially people in the West; they don’t see that these are large players with massive distribution, again 400, 600, 800 million daily active users. That’s something I want to highlight in terms of the leading companies because these players move fast and they have significant resources; they’re tech driven and innovative.

Q: What do you think a typical company in the wealth management industry will look like in five years?

Florian: Maybe five years is a bit of a short time frame for significant changes; even in that short span of time all of the existing companies will be more software companies than traditional financial services players. That does not mean there will be no Vanguard, or it will change completely. If you look at Larry Fink, he says they BlackRock is already a technology company. The same is true for Lloyd Blankfein from Goldman Sachs. These people see it, they know they have to be tech first and they will make that happen. In five years’ time these will be technology companies, first and foremost. Then, of course, you have the players that are software companies in their DNA already today and who are moving into Financial Services and broadening their businesses. Some will be bought by large incumbents, some will become significant companies in their own right.

The industry itself will be tech driven—that’s  clear to me—either by tech companies at the core or by traditional players that will morph into software companies. They realize even today that this will be the only way to stay relevant and survive in that industry.

Q: The concept of Industry 4.0 says that all companies will be software companies?

Florian: Yes, digital is eating the world. FinServe was always about tech; it’s not completely new to us. It was part of financial services from early on and today it’s software that is consuming financial services faster than most other industries.


Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also author of the WealthTech Club blog, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.