The WealthTech revolution began just over half a decade ago with a new understanding of wealth management and equity investment financial services.
This concept, originally considered part of its big brother, FinTech, brings together a series of players that converge around the same type of financial product and service. The management of assets and savings, as well as the diversification of investment methods for the wealth generated, has been transformed by the implementation of technologies that streamline their use and allow them to create new ways of operating.
There is a term that comes to mind when we talk about any of the X-Tech: democratization. Technology has made it possible for individuals and less qualified professionals to self-manage certain areas previously reserved exclusively for the largest and wealthiest companies.
WealthTech is the confluence of technology (Tech) with the area of finance that deals with wealth management and investment. This concept is used to refer to the businesses, users, initiatives and platforms of this sector and the methods, applications and tools that make their activity possible. Thus, we obtain a web of interrelationships between crucial players that make up the so-called WealthTech ecosystem.
The digitization of businesses dedicated to investment services took place almost two decades ago, however, it was not until about 5 years ago that the term WealthTech started to be used. Technology in the service of finance and banks arrived a long time ago, but the philosophy of autonomous online management by users and professionals without technical expertise is much more recent.
A clear distinction must be made between traditional financial companies that digitized certain procedures and those innovative and disruptive businesses that could not even have come into being had it not been for the ad-hoc creation of digital platforms and technological tools specially designed for their activity. In this way, it was possible to create new product and service categories in the sector that were previously unimaginable.
WealthTech stands out for its management without intermediaries and for users' online and remote access to its financial investment platforms. Likewise, businesses in this area make use of big data, their own methodologies and dynamics of social networks (Social Trading), robotic process automation (RPA and softbots), artificial intelligence, facial recognition and machine learning.
These platforms and their technological power are used by investment and wealth management professionals as well as the average user.
The WealhTech ecosystem is the set of players in the sector that with interrelationships of many types work as a coordinated mechanism to shape a thriving industry and from which we already obtain overwhelming figures compared to what could be thought only a few years ago. Already in the far back 2018 investments in WealthTech companies exceeded the figure of 3.5K million dollars.
That said, how has this been achieved? With a complex but complete landscape that is constantly evolving and improving every year, improving its proposal and leading innovation. The following is a rough breakdown of the different types of WealthTech that exist:
We have seen how, just when we thought WealthTech had nothing left to innovate, it has been able to reinvent itself to either use technology to diversify its offering or reinvent its business model with disruptive proposals based on a new way of understanding personal finance.
Both WealthTech and FinTech share the same regulatory framework and objectives. Many have denied considering the former as a distinct entity from the latter, and time has shown that they were wrong. The differences between the two are clear: WealthTech is clearly different from its big brother, although it works alongside it, especially in its commercial and advertising proposal, as well as in its business model.
Convergence has arrived, but with clear differentiation. The fact that a wallet card additionally offers investment services does not mean that it is the same company. We see how many FinTech companies have WealthTech partners to jointly offer this type of investment services, for which they earn a commission by acting as a business partner.
This is similar for PropTechs, which use third-party WealthTechs to offer their clients alternative financing for their mortgage loans or home insurance (InsurTech).
Companies belonging to both areas must comply with KYC (Know Your Client) requirements and conform to AML (Anti-Money Laundering) regulations such as AML6 (Sixth European Money Laundering Directive). The regulatory framework affecting them is basically the same. Even the cryptocurrency exchangers furthest from the norm (DeX and others) are already being taken into account by regulators in many markets.
As for the onboarding of their clients, the opening of a bank account, which has its own processes, follows the same rules as the sign up on any trading platform. Identifying clients under eIDAS (electronic IDentification, Authentication and trust Services) standards and performing the electronic signature and contracting processes under common standards has helped WealthTech companies that provide technological solutions such as Tecalis to standardize methods to optimize this type of process.
As we have been advancing, technological and business convergence is marking the current situation of WealthTech. Partnerships between companies such as wallet cards or neobanks with companies in the sector are driving the latter towards growth and greater recognition among users who are more unaware of its advantages.
Advertising is beginning to find a niche among large advertisers. In 2022 we have been able to see for the first time on television advertisements for trading platforms and even crowdfunding, something absolutely inconceivable just a few years ago.
In terms of technology, we can see how holistic digital platforms are bringing together in a single product all the tools and systems needed for different industry use cases. Likewise, easy integration into companies has stood out this year, as opposed to the old-fashioned, time-consuming developments needed to get a WealthTech up and running.
Cryptocurrencies have landed squarely on trading platforms, and by 2023 WealthTech is expected to embrace these assets for good, forming part of portfolios alongside traditional forex.