Fintech has transformed payments but not savings, says BlackRock’s chief executive
BlackRock hoping to use alternative data to drive up financial returns in the future
The financial technology boom has transformed the way over a billion people engage with financial services, particularly when it comes to making payments, but Larry Fink, chief executive of BlackRock, the world’s largest money manager, said that no company has yet managed to use technology successfully to get people investing for the long term.
“I believe that if we give more people more confidence about savings, about how to save – like Warren Buffett – then that would transform many societies. I believe one of the reasons global growth is weak is that we’ve got so much money sitting in bank accounts,” Fink said in an exclusive interview with the South China Morning Post.
Fink said there was a need for companies to use technology “to create better financial literacy to assist people to focus on savings for future – the same way we focus on our health or on making commerce so easy”.
“Fear is motivating people to keep their money in cash in bank accounts. If you’re going to retire in 40 years why keep your money overnight. It really is a mismatch. We have not solved that in the west, and we have not solved that in China.”
Both in China, and in Europe and North America, a plethora of investment platforms and robo advisory services are evolving, but none has yet reached critical mass.
Perhaps the closest is Ant Financial’s money manager Yu’ebao, which managed 1.2 trillion yuan (US$170 billion) of assets at the end of the first quarter of this year. However, strict regulation has curbed the fund’s growth, and in August it announced that it would reduce the cap on new investments to 100,000 yuan.
James Lloyd, fintech leader at consultancy EY, agreed that “no company has managed to use financial technology to facilitate long term saving and investing”, but added that “maybe it is a little too early to say for sure”.
“Lots of the first fintech players were in the payments space, and so they have become larger first,” he said
Fink said he expected technology to account for at least 30 per cent BlackRock’s revenues in the coming year, explaining that there were three ways in which he saw technology transforming his company’s business.
The first was to use technology to interact more closely with BlackRock’s clients so they would invest in better ways and for the long term.
“I’m betting on it, and we have an opportunity to play a large role,” Fink said.
The second impact of technology would be to streamline BlackRock’s operations.
“Five years ago a trade cost 5 [US] dollars and 70 cents on average in fixed and variable costs, now it costs less than 70 cents. That gives us efficiency through technology,” said Fink.
The third way Fink said that BlackRock would use technology was to gain new information to make investment decisions.
“Technology has made information (like balance sheets and income statements) so ubiquitous that there’s nothing special to having that information any more,” he said.
“We’re using technology to use information that has been created in the last three to five years. For example sensor technology, or new tools to analyse consumer sentiment better, or carry out word analysis on the intranet of companies,” Fink said.
The potential benefits of using such new data are significant. Research by financial services consultancy Quinlan & Associates found that the use of alternative data could lead to a potential revenue uplift of 15 per cent for asset managers, while also allowing them to cut their costs by another 15 per cent.
However, as data becomes more important for money managers, competition with those companies that started life as technology players will become more fierce.
“If the question becomes; who has the data and who is best placed to use it? – the big tech companies may be well placed,” said EY’s Lloyd.