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The digitization of the financial sector

The services of the financial sector are progressively adapting to digital transformation. This transformation is fostered by the rapidly increasing evolution of banking towards total digitalisation.

For several years, the financial sector has offered innovative services that previously could not be carried out due to the impossibility of personalizing them for each client. Robo-advisors technology, also known as robo-managers, and Fintech platforms have solved this problem and offer both clients and companies the possibility of creating personalized investment portfolios adapted to each one thanks to their foundation in algorithms.

But what exactly are these concepts? In DIGITAL55 we wanted to clarify them, explain how they work, what advantages they have and what are the most interesting ones for customers in this 2018.

Automated counselling and robo-advisors

Automated counselling is currently the best solution for commercial banking customers who want to invest in the stock market. It is a relatively modern concept that offers a large number of users the possibility of buying and selling funds. Minimizing, inside what is possible, the investment risk thanks to a customization based on algorithms.

The traditional financial companies distinguish between commercial banking customers, practically all the users of a bank, and private banking clients, those with a greater flow. The only advice available to customers classified in commercial banking was a portfolio of products distributed in mass and totally homogeneous for all users.

Within the automated advice one can distinguish between Automatic Trading Systems, or quantitative trading, and robo-advisors. The latter are better valued than the previous ones because they are less risky by offering less financial leverage.

Robo-advisors advise and manage investments automatically through the aforementioned algorithms. In this way, they suggest the client with a customized investment portfolio that they can modify at any time. To register on any robo-advisor platform, the client must respond to a series of questions that are framed in what is known as suitability test. These questions determine factors such as the risk assumed by the client, the suitability of the investment or the scope of profitability, among many others. “Once we have the portfolio that interests us, we must register on the Securities Agency with our personal data and send the documentation needed. Finally, we must open a securities account in the entity with which the Agency works so that the robo-advisor can operate and offer their services, since they will only operate with these accounts “.

The robo-advisor appeared in Spain in 2014. The precursor was Feelcapital and today remains one of the best valued by customers. Only at the end of 2017 the robo-advisors managed more than 100 million euros.

The automated advice is gaining more and more ground compared to the traditional financial companies because of their innovation and the bigger advantages it offers:

  • Automation allows customers without high assets to receive professional advice.
  • Without a fixed schedule, customers can access their investments and make inquiries at any time of the day, every day of the year.
  • The commissions, on their part, are much lower than those charged by the advisors, as it is a digitized and autonomous service. In most of the robo-advisors platforms they do not exceed 1% and even some can just give commissions of 0.3%.
  • Finally, it also highlights that the purchase-sale operations are carried out on their own, allowing the client to focus on other matters.

The best rated robo-advisors in Spain

In Spain there is already a considerable amount of automated advisory platforms. However, not all have the same facilities, advantages or commissions. We will name four that are preferred by customers thanks to the services they offer.

1.- Feelcapital – The pioneer robo-advisor in Spain remains in the high positions thanks to the huge amount of assets offered by more than 250 managers and their transparency in terms of commissions. Feelcapital helps users establish a personalized investment portfolio for each one through a series of steps: 1) A questionnaire determines the flexibility to the risk that the client is willing to assume. 2) This step establishes the amount to be invested and the optimal number of assets in which to do it. 3) Depending on the risk tolerance of the user, the assets can be distributed among the Monetary Markets, Fixed Income or Variable Income. 4) Once the previous steps are completed, an algorithm is responsible for determining which are the best assets for each user.

2.- Indexa Capital – Another of the first robo-advisors that arrived in Spain is Indexa Capital. This automated manager offers its clients a diversified investment portfolio, easy to understand and with very competitive commissions, only 0.62%. In the same way as in Feelcapital, before starting to operate, it is necessary to answer the suitability test with which the user profile will be determined. Once this test has been performed and the profile of the potential investor has been determined, the platform suggests to the client the investment plan that best suits their profile, which can be modified at any time. Finally, with the investment made, the platform is responsible for periodically monitoring it to make the readjustments automatically. Indexa Capital also allows the transfer of funds among other entities without any surcharge or payment of taxes for said transfer.

3.- Finizens – This robo-advisor was created in 2015 as a company within the financial group Axon Partners Group. Like the previous ones, to be able to use the platform it is necessary to answer the suitability test that allows to determine the profile of the client. The funds invested in this robo-advisor are in the custody of the company Caser Seguros.

4.- inbestMe – Last, but not least, is inbestMe. A robo-advisor that focuses mostly on driving long-term investments with regular contributions to offset volatility and thus reduce the risk of investment. To generate a precise profile of the client, inbestMe collects, through suitability tests, data about the user such as his financial situation, the level of risk he would be willing to assume or the knowledge that he has about investments and finances, among others.

Fintech Companies

The Fintech concept refers to those companies in the financial sector that use technology to digitize business processes and models in order to reach a greater number of clients.

Fintech companies are entities that act as payment mediators, brokers or financial advisors. Its main function is to intercede in all environments of the financial sector. Within Fintech companies there are different types whose functions in the sector vary from one to another.

1.-Financing companies of individuals and other companies: The purpose of this type of company is to facilitate communication between investors and companies or individuals seeking financing. Crowdlending

firms are found within this type of Fintech, which are characterized by stimulating the financing of companies through a large number of small investors. These entities, in addition to offering their clients the possibility of investing in companies, advise and help them throughout the process.

2.- Financial and investment advice: A large number of companies classified as Fintech are dedicated to cover these services. With the help of robo-advisors technology, these entities can reach a greater number of clients that could not access them before.

3.- Companies that offer payment systems through smartphones and tablets: They are a type of companies that are proliferating due to the growing trend of biometric authentication in mobile devices. Today they are leading the sector, far ahead of the services offered by the bank.

4.- Transfer companies: During the last years Fintech startups dedicated exclusively to the transfer of funds between bank accounts have been emerging. This exponential growth has been caused by the high commissions that the banks charged to their clients, since it was an exclusive service of these entities.

Five of the best Spanish Fintech platforms

Today, in Spain there is a large number of Fintech companies. They emerged relatively recently and the growth experienced by these has been overwhelming. However, five stand out among them both for the innovative services they offer, and for the quality of them, they have been placed on top of the list of the best Fintech platforms in the country.

1.- Ecrowd! – It is one of those companies dedicated and aware of the problems of the environment. Its purpose is to obtain funding through crowdlending for sustainability projects and protection of Planet Earth.

2.- Zank – is a platform whose base is very simple: to put in contact people who want to invest in a project with people who need money to carry out this project. Interest on loans is much lower than that of any other entity in the sector. According to its website, “Zank is the platform where people trust people to make smart use of money.”

3.- Exaccta – is”the first application worldwide that, just by taking a photograph with your smartphone to your invoices and tickets, automatically extracts, in real time, with or without connectivity, all the necessary data, to generate your accounting and your taxes (if you are a professional), keep a budgetary control of your expenses (if you are a family), or generate the report of your monthly expense note (if you are an employee). There can be no better definition than that given by its own creator, Carlos Tapiador. In essence, the app allows automatic and real-time accounting of expenses by simply taking a photograph of the invoice, without having to wait until the end of the month or entering data after each purchase and being able to get rid of the tickets.

4.- Captio – works with the same premise as Exaccta, the application extracts, through a photograph with the mobile device, all the necessary data of a purchase invoice. However, it differs from this in that it is only used to manage business travel expenses. It is approved by the Tax Agency and its main functions are to report, manage and account for business expenses.

5.-PayPro – is a simple application to use that brings the Blockchain closer to the general public”. This was defined by Pablo Ruiz, one of the founders, in an interview in El Referente, the platform that allows payments to be made in a large number of different currencies, avoiding up to 90% of the fees fixed by banking entities.

The financial sector is one of the sectors with the greatest digital transformation. This helps to expand the market by reaching a greater number of users and achieve better business opportunities. The technology robo-advisors along with the rise of Fintech companies have revolutionized a market that, until a few years ago, could not satisfy an overwhelming majority of banking customers due to its high costs. The digitization of the sector has brought a more than substantial reduction of such costs and, consequently, a large increase in customers.