How technology boosts investor confidence

Trust is at the center of all financial transactions in some form, and technology can enable and strengthen that trust.

“Strengthen investor confidence“ focuses on the connection between technology and trust within the financial world. It shows that trust in financial services is each visible and invisible: it’s the ever-present backbone of monetary transactions and the interface to the surface world through which these transactions are conducted.

Greater technology integration in finance helps construct two forms of trust which might be essential to investing: “execution trust” and “relationship trust.” The former refers back to the knowledge that transactions are being managed securely, accurately and appropriately, while the latter describes the worth that higher investment tools and product personalization create for investors.

Technology improves access to financial markets and strengthens the representative equality of various market participants. It drives the event of latest services and products that open markets to more people and address the trust gap between retail and institutional investors, across geographies and populations, and between advisor and non-advisor retail investors.

Execution Confidence and Fundamentals

Execution trust drives market participation and all market participants, no matter demographic, need it. By promoting execution trust, the technology bridges the trust gap between every type of investors and helps ensure a level playing field.

As the World Bank states:

“Fintech can democratize access to finance and the world can move closer to financial inclusion. . . . Fintech has the potential to reduce costs while increasing speed and accessibility, enabling tailored, scalable financial services.”

Globally, digital payment providers are the primary entry point into financial services. In some markets, particularly those without traditional banking infrastructure, they’re the first form of transaction. As a result, trust in digital payment providers – Apple Pay, Venmo, Alipay, Zelle, etc. – was rated highest across all subsectors of the financial services industry in most markets.

Trust digital payment providers*

Retail accounts and apps further help address inequality in access to financial services. The survey found that 71% of respondents consider these tools improve their investment understanding. Institutional investors are also optimistic: 89% say they’re increasing trust in financial information. These developments have a direct impact on sentiment within the industry: respondents with retail accounts are greater than twice as prone to say they trust financial services than those without them.

Relationship trust and personalization

Relational trust is an additive value that builds on execution trust and describes what advisors can accomplish once they understand, discover with, and align with a client’s personal values ​​and motivations. As with retail accounts, whether an investor has an advisor influences how much they trust financial services. Of those that have an advisor, 69% have high or very high confidence in financial services, in comparison with 45% of those that should not have an advisor.

Technology can control the shape and frequency with which advisors communicate with clients, helping them adapt accordingly to supply each client with the proper information at the proper time. It may also facilitate the event of more customized products. Ultimately, technology-enabled personalization – direct indexing, AI investment strategies, etc. – strengthens the connection between investors and the investment industry.

The demand for such products is high. The survey found that 78% of retail investors and roughly 90% of those under 45 are concerned with more personalized investment services and products.

Percentage of respondents who want more personalized products/services to raised meet their investment needs, by age group

Implications for the longer term

That the adoption of monetary technology tends to learn younger investors is not any surprise, but as more assets are held by these digital natives, technology integration will turn into more integrated into the client-advisor relationship. This influences the way in which investors take part in the markets overall. For the primary time within the Investor Trust series, access to the most recent technology platforms and tools was cited as more vital (56%) than having someone to administer and implement the investment strategy (44%).

As trust in financial technology increases, the potential for brand spanking new providers of monetary services and products to enter the market also increases. The survey found that 56% of retail investors could be more concerned with investing in financial products from Amazon, Google, Alibaba and other major technology corporations than financial institutions.

Of course, the ubiquity of technology in financial services poses certain challenges. Data protection is a central aspect. More than one in 4 respondents (27%) say they’re less willing to make use of online platforms that require entering personal information than they were three years ago. Technology’s impact on behavior is one other concern: of survey respondents with a retail account, 57% say it has increased their trading frequency, while 74% say they consider implementing digital “nudges” has improved their investment performance /decision making will improve.

Of course, such warnings are a obligatory reminder that uncontrolled technology can have unintended consequences. For this reason, technology integration in finance should be approached with intention and control to maximise its trust-building impact on the industry.

If you enjoyed this post, remember to subscribe.

Photo credit: ©Getty Images/Ilya Lukichev