The purpose of this work was to find out whether Fintechs are able to compete with Banks in the field of Asset Management. Companies providing Robo Advisory services are considered to be the banks of the future. Several interviews with companies working in this field have been conducted to investigate if the algorithms are prepared for the next financial crash.
This work contains 7 chapters, starting with the motivation and research question. Sec-ondly, the general situation on the market will be described, including the changes of customer behavior. This serves the purpose to give an understanding about the current market conditions. Thirdly, the banking sector will be described, considering definitions and regulations. In this work the focus will be on the German market, therefore, con-sumer behavior and details about the German retail banking industry are relevant. Sub-sequently, chapter 4 deals with asset management and the new trends in the industry. Chapter 5 describes the development of the fintech industry. Definitions and regulations of the fintech companies are part of this chapter. In chapter 6 the scientific investigation will be conducted and presented. The results will show how stable the new technologies are, in order to give an outlook for the future in the next chapter. Prospects for the future of retail banking and especially asset management will be mentioned in chapter 7. General current trends and forecasts are also part of this chapter.
Since only limited literature is available about the fintech industry and especially robo advisory, the investigation part includes a qualitative approach with interviews that have been conducted with qualified specialists that work or research in the robo advisory industry. The question of whether and how the robo advisors will survive the next fi-nancial crisis, is topic of the interviews. There has been no financial crisis that might have caused unforeseen problems for the systems, ever since the creation of robo advi-sory. Thus, it is unknown how those technologies will react to chaotic market situations. The idea was to ask companies to what extent they are prepared for a financial crisis. The findings of this investigation will deal with the possible future outline of those fintechs providing algorithm-based asset management. The question about the security framework has been answered with a view to examining the future development of the robo advisory industry.
Table of Contents
1 Introduction
1.1 Relevance of the topic
1.2 Research question
1.3 Structure and approach
2 Changes on the market
2.1 Overview
2.2 Digitalization
2.3 Changes in customer behavior
2.4 Internet
2.5 Mobile
3 Banking
3.1 Banking in Germany
3.2 Retail Banking in Germany
3.3 New trends of Retail Banking
4 Asset Management
4.1 Type of Investors
4.2 Service Type
4.3 Place of Service and Investment Objective
4.4 Market Participants
4.5 Processes
4.6 Intermediaries
5 Fintech
5.1 Definition
5.1.1 Impact of Fintech
5.1.2 Impact of Robo Advisors
5.2 Asset Management
5.2.1 Personal Financial Management
5.2.2 Robo Advisory
5.3 German market in comparison
5.4 Regulations for Robo advisors
5.5 Legal classification of Robo Advisory models in Germany
5.6 Analysis of the Business Model
5.6.1 Business Model Canvas
5.6.2 Key Partners
5.6.3 Key Activities
5.6.4 Key Resources
5.6.5 Value Proposition
5.6.6 Customer Relationships
5.6.7 Channels
5.6.8 Revenue Streams and Cost Structure
5.6.9 Customer segments
6 Investigation
6.1 Introduction
6.2 Aim of research
6.3 Structure
6.4 Results
6.4.1 Characteristics of the companies
6.4.2 Answers
6.4.3 Analysis
7 Conclusion
7.1 Development
7.2 Digitalization
7.3 Partnerships
7.4 Security concerns
7.5 Modification of the industry
7.6 Summary
8 Appendix
Research Objectives and Themes
This thesis examines the transformation of the traditional banking sector through the emergence of financial technology (Fintech) companies, with a specific focus on the asset management sub-segment known as "Robo Advisory." The research investigates whether these algorithm-based platforms are reliable, secure, and viable long-term alternatives to conventional banking and investment management, particularly during unstable market conditions.
- Digitalization and its impact on customer behavior in the financial sector.
- Business models of Robo Advisory compared to traditional banking practices.
- Regulatory frameworks and market conditions in Germany.
- Security and reliability of automated investment algorithms during market crises.
- Strategic partnerships between established banks and Fintech companies.
Excerpt from the Book
5.1.1 Impact of Fintech
PricewaterhouseCoopers has conducted a survey about fintechs that are reshaping the banking industry. This survey has shown to what extent the industry is expected to change through the formation of new market participants. In total, 76 percent of the banking respondents claim to fear that some part of their business is at risk owing to fintech companies.
Loss of market share is considered the biggest worry of the banks. Through the better conditions and more retailed services, the fintech companies are expected to take over market shares in the banking industry, put pressure on margins, provide better information security and increase customer churn. The fintechs are observed in the banking industry as the biggest threat for the next years that will take over a part of the market share. Almost the same amount thinks that the margins might change through the provided services by the fintechs. On the other hand, all sectors together expect the fintechs to put pressure on the margins, as the most likely scenario. In summary, the new firms on the market represent a change for all finance related industries with the possible outcome of pushing out the present ones. Fintechs provide the services that the customers demand with the help of new innovative technologies. Therefore, those market participants that didn’t change their product portfolio according to the needs of the customers are expected to go through negative changes. The Global Fintech Report 2017 by PWC shows that the number of people worried about their part of the business has increased from 76 to 88 percent, an indicator for the expansion and impact of new services in the banking industry (PricewaterhouseCoopers, 2017: 5f.).
Summary of Chapters
1 Introduction: Introduces the shift in the financial services sector driven by digitalization and outlines the study's focus on the emergence of Robo Advisory.
2 Changes on the market: Examines broader market trends, including the impact of digitalization, evolving customer behavior, and the growth of internet and mobile technology usage.
3 Banking: Provides an overview of the German banking system, its structure, and current trends in retail banking.
4 Asset Management: Details the key components of asset management, including investor types, services, and the role of intermediaries in the investment process.
5 Fintech: Defines Fintech, explores its impact on the banking industry, and provides an in-depth analysis of Robo Advisory business models and regulations.
6 Investigation: Presents the results of a qualitative study based on interviews with industry specialists regarding the performance and reliability of Robo Advisors.
7 Conclusion: Summarizes the findings on the future of the industry, focusing on digitalization, partnerships, security concerns, and market modifications.
Keywords
Fintech, Robo Advisory, Asset Management, Banking, Digitalization, Investment, Algorithm, Market Share, Financial Crisis, Portfolio Management, Customer Behavior, Regulation, BaFin, Business Model Canvas, Transparency
Frequently Asked Questions
What is the core focus of this Master's thesis?
The thesis focuses on the transformation of conventional banking by Fintech companies, specifically examining how Robo Advisory platforms operate and compete with established banking institutions.
What are the primary themes discussed in the research?
Key themes include the impact of digitalization on customer preferences, the regulatory environment in Germany, the business models of Robo Advisory firms, and their performance during market downturns.
What is the main research question?
The main question is whether algorithm-based asset management methods can successfully compete with traditional market players or if they will face significant hurdles regarding security and long-term stability.
What scientific methods were employed for this study?
The research uses both a comprehensive literature-based investigation and a qualitative empirical approach consisting of interviews with five specialists from the Robo Advisory sector.
What topics are covered in the main section of the book?
The main section covers the German banking landscape, definitions of Robo Advisory, regulatory challenges (e.g., MiFID 2), detailed business model analyses, and a practical investigation of system reactions during market instability.
Which keywords best describe the essence of this work?
Essential keywords include Fintech, Robo Advisory, Asset Management, Digitalization, Financial Algorithms, Market Performance, and Investor Protection.
How did Robo Advisors perform during the February 2018 market slump?
The study notes that Robo Advisory portfolios generally experienced performance losses between 3.6% and 8.2% during this period, similar to the broader market.
Do Robo Advisors have emergency plans for financial crises?
The interviews revealed that most algorithm-based Robo Advisors do not have automated emergency "kill switches" for crises; instead, they rely on pre-defined thresholds and monitoring by human expert teams.
What is the primary advantage of Robo Advisory according to the author?
The primary advantages identified are cost efficiency, transparent 24/7 access to portfolios, and the ability to provide automated, evidence-based investment advice to non-wealthy individuals.
- Citation du texte
- Gleb Romanchuk (Auteur), 2019, Transformation of conventional Banking. Opportunities and risks of Fintech companies in Asset Management, Munich, GRIN Verlag, https://www.grin.com/document/461793
