Many of the ongoing developments in fintech will face tough times. It appears that funding for invest-tech platforms such as robo-advisors has decreased throughout 2019.
That it worrisome, albeit not entirely unexpected either. These business models need to be put into viable products first before more companies can come to market.
The Rise of Robo-advisors
Several years ago, virtual financial assistants began making the rounds. They are now known as robo-advisors, capable of performing basic financial advisory tasks. Several banks use this technology to aid customer sin checking balances or asking for investment advice.
While it is still considered a viable business, the funding appears to be drying up. Deloitte research confirms less money is making its way to robo-advisory outfits in 2019. There are also far fewer new entrants jumping on this business opportunity.
Overall, the invest-tech platforms are struggling. Most of these services seemingly cater more to younger customers. As such, the costs can often outweigh the revenue brought in by these robo-advisors. Not an ideal situation for financial institutions already struggling to turn a profit.
The numbers put forward by Deloitte are not pretty. If a robo-advisor brings in a client with $20,000 in their account, the bank generates $50 per year. Those numbers are very low, yet institutions cannot overcharge their customers either.
To break-even on invest-tech integration would take up to ten years. A lot can change in the financial industry over the course of a decade. This entire business model may have become obsolete by the time institutions break even on their investment.
There’s Still money Coming in
While the outlook may be bleak, there are some positive figures as well. Investors still contributed $1.4 billion to invest-tech platforms raising money. This is down by nearly 50% compared to 2018, albeit that was somewhat to be expected.
One also has to keep in mind that the final tally isn’t available yet. The figures published by Deloitte only account for funding up until 30 September 2019. More money may have made its way to robo-advisory firms in the final quarter of 2019. Even so, it will not change the overall narrative all that much.
For now, the outlook for this new decade has yet to be determined. Robo-advisors will not go away, but the launch of new offerings may remain fairly limited.