The
era of technology and the Internet has been going on for about two decades
since the emergence of the Internet in 1995. According to www.internetlivestats.com
website, about 40% of the world population is using the internet in their daily
life. However, in recent years, the evolution of technology especially
financial technology, namely fintech, and blockchain has been debated and
discussed all around the world as it created a new era for financial system to
work for. Is it a disruptive or an opportunity to the financial industry players
to move forward in the future? This article aims to discuss the impact of
financial technology and blockchain on wealth management. Apart from that, this
article also discusses in detail the fintech and blockchain impact to wealth management
by including the statistic and examples from the perspective of wealth
management. In conclusion, the impact of fintech and blockchain on wealth
management can be directly seen in terms of investment and payment system. This
article hopes there will be research on how to expand these future potentials
in the financial system especially for wealth management from the regulatory
aspect.
According
to PwC Global Fintech Report 2017, 77% of financial institutions will adopt
fintech and blockchain as part of their system and process. Moreover, 20% of it
is expected to get a Return on Investment (ROI) on fintech by 2020. This
somehow affects the wealth management companies indirectly, if they still
refuse to use this platform as part of their management and operation. From the
respond of Asset and Wealth Managers (AWM), 17% believed fintech would not
threaten their industry, compared to other industry respondents. Apart from
that, customer experience and expectation is also changing and evolved to suit
the current environment of digitization. This cannot be done only by
traditional wealth management, but need more sophisticated tools to meet their
client expectation. This should be an eye-opener to wealth managers as banking
and payments industries have already provenfr that it is a threat if they
cannot manage to treat and collaborate with it accordingly.
Financial technology or fintech is about the model, value, and process financial products such as bonds, stocks, contracts, and money within the building systems that integrate mathematical, statistical and computing to ensure fast delivery of information (Freedman, R.S., 2006). It is incorporated simultaneously with commercial transaction which include trading technology and buying and selling at any point of time. Looking back into the early stage of financial institutions, they used a traditional way to compute interest rate, customer installments etc., that is, through ledger in the books. This is a complicated way to manage a financial institution. However, since the emergence of internet in 1995, financial institutions started to use technology in their operations. Some of the advantages of using technology in financial transaction is the reliability of the system compared to human acts. Below is the figure of percentage of respondents that expect these entities will affect the financial system in the next five (5) years.
Based
on the report, 38% of the customers deal with fintech companies on wealth
management with 84% of the customers used fintech companies to transfer their
money. This will indirectly disrupt traditional financial institution on great
level as everyone is going into the era of technology.
In addition, after the financial crisis back in 2008, public perception towards financial institutions has decreased in terms of confidence and trustworthiness in their operations. This created a new development in financial system known as the blockchain. Basically, blockchain is an open ledger that operates on a cryptographic system through decentralized network where all parties are allowed to connect, to send or verify transactions (Nguyen, Q.K., 2016, Condos, J., Sorrel, W.H. & Donegan, S.L., 2016). It makes transaction between two parties more effective and transparent between themselves without any involvement of an intermediary. As at now, blockchain has managed about 18,000,000+ wallets around 140 countries with 160,000 daily transactions in the system, according to www.blockchain.com website. This is an impressive and fast development of blockchain despite that it only started in 2009 when ‘Satoshi Nakamoto’ wrote a paper on ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ in 2008 that talked about peer-to-peer electronic cash transfer without trusted third party (Singh, S., Singh, N., 2016).
In
conclusion, Fintech and Blockchain are the financial indicators that contribute
to the growth performance of wealth management. Hopefully, the asset and wealth
management system will continue to grow in the future and will become more open
with the new technology that will come in future. More research needs to be
done as this new technology can operate within the regulatory body and
collaborate well with the traditional system.
Words by:
Muhammad Hamidi bin Kamaruddin
Nurul Ruzaini binti Razaki