FinTech and WealthTech are the terms that often surface when the talk of technological revolution comes up. They may sound similar since they relate to finances, growing, and managing wealth. However, understanding WealthTech's narrow focus and FinTech's all-encompassing power is crucial for businesses and individuals seeking financial advice.
Whether you are an investment manager, or a company looking for fintech as a service, here is everything you need to know about FinTech and WealthTech trends, applications, and advantages.
WealthTech vs. FinTech: Defining Main Differences
The financial industry has undergone a significant transformation in recent years, with technology playing a pivotal role in reshaping traditional financial services. Two key players in this transformation are FinTech and WealthTech. But what is WealthTech, and how does it differ from FinTech?
WealthTech, short for wealth technology, is a subset of FinTech that focuses on enhancing and simplifying wealth management processes for financial institutions and individual investors. It encompasses many applications, including robo-advisors, personal finance management, investment platforms, and financial planning tools.
On the other hand, FinTech, short for financial technology, is a broader term that refers to the innovative use of technology across various financial services sectors, such as banking, insurance, payments, lending, and wealth management. In other words, WealthTech is a specialized segment within the larger FinTech ecosystem.
FinTech and WealthTech are often interchangeable terms, which is not entirely correct. WealthTech is a part of FinTech, and while some concepts of the two terms overlap, the overall definitions should be considered separately.
FinTech stands for finances and technology and refers to receiving, spending, and transferring money by users. WealthTech focuses on designing tech solutions that help users invest and manage finances in more convenient and profitable ways.
The main differences between FinTech and WealthTech are:
- Scope: While FinTech covers many financial services, WealthTech focuses on wealth management and investment services. FinTech's extensive scope covers a broader spectrum of financial services like payments, lending, compliance, etc. WealthTech includes robo-advisory platforms, retirement planning tools, investment analytics, and estate planning solutions. WealthTech companies possess deep knowledge and expertise in wealth management, investment strategies, and the needs and challenges investors face.
- Target audience: FinTech solutions cater to a diverse audience, including consumers, businesses, and financial institutions. WealthTech, on the other hand, primarily targets individual investors and wealth management firms.
- Technological applications: FinTech and WealthTech leverage cutting-edge technologies, such as artificial intelligence, big data analytics, and blockchain. However, WealthTech solutions are specifically tailored to improve wealth management processes, such as portfolio optimization, risk assessment, and financial planning.
- Regulatory environment: While FinTech and WealthTech are subject to financial regulations, WealthTech faces unique challenges due to the complex nature of wealth management and the need for compliance with specific investment-related regulations.
- Market maturity: FinTech is a more mature market, with numerous established players and a wider range of solutions. WealthTech, though growing rapidly, is still an emerging segment within the FinTech space.
WealthTech and FinTech drive innovation in the financial industry, but they differ in scope, target audience, and technological applications. As the demand for digital solutions continues to grow, both sectors are poised to play a crucial role in shaping the future of financial services.
FinTech and WealthTech Verticals
The scope of FinTech is dynamic and ever-evolving. It develops in pace with technology and innovation and aims at driving efficiency and accessibility for customers. Moreover, it is a rapidly growing industry with 5.62 billion users, expected to reach 7 billion by 2027.
Here are the aspects that fall under the scope of FinTech:
Blockchain and Payments
The invention of mobile wallets and cryptocurrencies revolutionized the payment process and, as a result, businesses. It added cost-efficiency, safety, and speed. The introduction of PayPal, Bitcoin, and Square disrupted traditional payment systems.
Lending and Alternative Financing
Online lending marketplaces, lending platforms, and crowdfunding platforms are all inventions generated by FinTech. Kickstarter and Indiegogo provided opportunities for many businesses to rise since they made access to financing simple and available for everyone.
InsurTech
The insurance industry got influenced greatly by FinTech, which introduced personalized insurance solutions, digital platforms for claims processing, and risk assessment. Insurtech market size is estimated to be $8.6 billion with an expected CAGR of 15% by 2033.
RegTech
RegTech leverages technological solutions like AI and ML to optimize compliance processes, monitor transactions for suspicious activities, and ensure that all regulations are followed. The RegTech market size is expected to reach $1,085.9 billion by 2032. The reasons for such growth are the adoption of new digital technologies and the spur of FinTech & wealth management startups.
WealthTech was designed to improve wealth management and provide investment advisory. The market is expected to grow to $12 billion by 2025. It makes personal finance management user-friendly and lowers the cost significantly. The scope of WealthTech covers the following:
Robo-advisory Platforms
These platforms provide advice on digital investment and portfolio management using algorithms and technology. Their popularity is explained by enabling personalized investment solutions and cost-effectiveness.
The main benefits are:
- Accessibility. The platform enables investors with smaller investment amounts to have access to professional tools.
- Transparency. Robo-advisors provide transparent investment strategies with that the user is always aware of the fees, performance reporting, and accountability.
- Automation. The platform automates tasks like rebalancing, asset allocation, and tax optimization, saving managers time and effort.
Financial Planning and Retirement
WealthTech offers a variety of digital tools for retirement planning that enable individuals to take control of their financial future. It helps individuals assess their needs and create:
- individual saving plans
- investment strategies
- retirement income streams.
For example, ElifTech has partnered with a Spanish advisor to update their investment and pension funds platform and improve UX. Find more details in our case study.
Investment Analytics and Insights
Another vertical of WealthTech is related to data. Analyzing financial data and market trends is crucial to ensure that investment decisions are data-driven. To process vast amounts of information, WealthTech applies artificial intelligence and machine learning algorithms.
The main benefits are:
- Data-driven decisions. Instead of relying on gut feeling and guesswork solely, the investors get to see the status quo and data-based forecasts.
- Risk management. The WealthTech tools offer modeling and simulation of situations and related risks. Hence, it is possible to look at the scenarios and enhance the diversification of the portfolio if necessary.
- Performance evaluation. In-depth performance evaluation allows us to see historical data, benchmark against relevant indices, and follow the portfolio's progress while identifying strengths and weaknesses.
- Portfolio Optimization. Investment analytics platforms offer advanced optimization solutions. It means that they consider risk tolerance, time horizon, market conditions, and more factors to design a well-balanced portfolio.
Estate Planning and Wealth Transfer
WealthTech platforms help individuals control their estate planning decisions like asset distribution and efficient transfer of wealth. Examples of such platforms are:
- Digital Will and Trust Creation
- Beneficiary Designation and Management
- Legacy Planning and Charity Giving
- Family Office and Multi-Generational Wealth Management
The main benefits are:
- Simplified documentation and administration. Since technology enables digitalization and automation, the creation and update of legal documents like will, trust, and powers of attorney becomes streamlined.
- Enhanced privacy. Even though the documentation is easily accessible, the platforms ensure it remains confidential and available only to authorized parties.
- Centralized Asset Management. With the digital platform, individuals can centralize and manage their assets in one place. Hence, all financial holdings like investments, insurance, real estate, and bank accounts are tracked easily and transparently.
How FinTech Is Disrupting Wealth Management: WealthTech Trends Shaping the Industry
FinTech is reshaping our lives. What used to be a specialized computer program known to a narrow circle of specialists is now a simple mobile app used by millions. Technology seeks to automate, simplify and make everything accessible. The same happens with finances. Funding for fintech is on the rise, and artificial intelligence is one of the drivers of such progress.
The common applications of AI in FinTech are:
Conversational Finance
Chatbots and voice assistants facilitate financial interactions and provide personalized advice. They significantly increase any service's response speed and boost customer satisfaction.
The basis of conversational finance is natural language processing and artificial intelligence. They ensure communication in real time. WealthTech platforms integrate conversational finance for account management and transactions. That way, customers can communicate with virtual assistants to check balances, make transfers, pay bills, and perform other banking transactions. It enables companies to provide round-the-clock support worldwide regardless of the time zones and continents.
Financial Analysis
The analysis of data has been conducted before. However, the amount of information added resulted in the long duration of such a process. With the introduction of AI and ML algorithms, large chunks of data are summarized, categorized, and processed in any way desirable within minutes. Hence, financial services can provide recommendations, insights, and forecasts timely.
WealthTech companies apply financial analysis techniques for cash flow management. Integrating budgeting, expense tracking, and cash flow analysis features provides insights into user income and expenditure patterns.
Synthetic Data Generation
This process envisages the generation of data with similar statistical properties and patterns as original data without any personally identifiable or sensitive information. What does it mean in practice? Fraud detection and risk assessment are crucial for WealthTech and Fintech and any industry working digitally. Acquiring data on such activities is a challenging task for companies. Yet, they need it to improve security and privacy protocols. Synthetic data generation is a big leap in this area since companies can mimic fraudulent patterns and test fraud detection models on them.
Predictive Analytics
The main advantage of predictive analytics is AI/ML algorithms that enable quick and accurate decision-making for all stakeholders of WealthTech. As a result, investment managers got more confidence in their forecasts, while investors kept gaining more profits. To be specific, predictive analytics is applied for:
- Behavioral finance analysis
- Risk assessment
- Market trends analysis
- Predictive customer lifetime value
- Customer segmentation and personalization
Blockchain
With the invention of blockchain, borders disappeared, and users got an easy pass to the global market. In addition, the cost of fees was significantly cut, hence making transactions and other wealth management activities much cheaper and affordable. According to Forbes, Allianz, a German insurance tycoon, leveraged blockchain to optimize auto insurance claims. Before blockchain, the company operated via emails between different teams. In addition, they were using different incompatible databases. Blockchain allowed them to reduce the cost of processing claims by 10% and reduce the time to minutes.
The technology possesses all the needed characteristics to satisfy the needs of WealthTech and make it modern and flexible. In addition, it ensures data protection, fractional ownership, and transparency.
The Power of FinTech & WealthTech for Enhanced Wealth Management
The synergy between FinTech and Wealthtech enhances wealth management. With the combination of the two technologies, FinTech app development companies design unique, personalized solutions that fit the users' needs perfectly. In practice, an investor does not have to go to the office, book an appointment with the investment manager, and go through the whole labyrinth of red tape, endless forms, and waiting times. On the side of the investment manager, there is no need to process a pile of papers and only think of the investment management itself.
On the contrary, the client of WealthTech is interested in the smooth process of investing and watching the wealth grow. Hence, the ultimate goal of FinTech and WealthTech is to automate all the decision-making where possible and eliminate unnecessary routine operations that investment managers waste their time on.
Robo-advisory exemplifies the synergy between FinTech and WealthTech. It shows the combination of technologies that allow personalized wealth management recommendations and portfolio management; sophisticated algorithms adjust recommendations continuously based on the client's unique circumstances. As a result, the experience of both clients and managers improves.
Enabling Fintech and WealthTech with Eliftech
For over a decade, ElifTech has been working on the development of cutting-edge FinTech and WealthTech solutions. Our portfolio showcases various projects, including white-label fintech platforms, open banking, and digital banking platforms.
Creating Fintech solutions requires constant monitoring of market trends, updates, and needs. Hence, our experts remain at the forefront of the industry and are ready to offer you the most suitable, durable, and robust solutions regardless of your business sector.
Whether you operate in private banking or wealth management, we have the expertise to tailor the solutions that optimize your processes, satisfy your customer, and leave ample room for strategic planning.
Conclusion
FinTech and WealthTech are branches of financial services that share a foundation in technology. Yet, recognizing their scopes is crucial for capitalizing on their potential.
As industries evolve, new trends appear and reshape businesses for all. In the current trends, it is obvious that technology is increasingly human-oriented with a strong emphasis on client needs. One of the drivers of such a shift is AI and ML, which revolutionized the speed and efficiency of business operations.
WealthTech presents an ultimate opportunity to blossom and cater to the dynamically changing requirements of investors and wealth managers. With AI and ML, the WealthTech sector is poised to deliver personalized solutions like never before.