Year in review

What would you highlight as the main technology themes for the wealth management sector in 2021?
2021 was definitely the year that the concept of Banking-as-a-Service (BaaS) to support embedded finance became ubiquitous. The opportunity for wealth management services to leverage embedded finance (known as embedded wealth) started to be recognized. This not only represents new ways to invest but also a new model to offer products to support insurance services – via InsurTech – in overall financial planning or so-called financial wellbeing. The inclusion of wealth services has moved embedded finance from a pure transactional angle (with payment and lending) to a more relational angle with wealth and insurance services.

We’re having conversations and are signing new deals relating to embedded wealth with firms across a broad range of industries, from e-commerce platforms to employee wellness providers and insurers. They see the opportunity to open up a much bigger addressable market by offering wealth management services natively within their existing customer journeys. Existing financial services providers also see the opportunity, as partners demonstrate. Last summer, we announced our collaboration with Nordic partners including Evida to meet the growing demand for hybrid investment advisory service. This is the first stream of our embedded wealth deals, and we’ll be confirming more in the coming months. For financial service providers, who could develop the service themselves, using a BaaS provider is about using a specialist and getting to market fast.

Why were those themes relevant in 2021 and what progress did wealth managers make in response?
Embedded finance has become possible and an imperative, thanks to the confluence of various market trends:

• Open Banking legislation has encouraged data sharing among an ecosystem of players.
• New technology, such as APIs and Cloud solutions, makes interacting across platforms easier.
• Non-financial competitors, such as Amazon, who are offering their own financial services forcing financial institutions to choose between either partnering or going into head-to-head competition with them.
• Customers expect financial services at the point of contact, such as for payment or lending. This makes it more difficult to up-sell and cross-sell, thus increasing attrition for existing banks.

In short, the distribution of financial services is reaching an inflection point in wealth management.

Year in view

What would you highlight as the main technology themes for the wealth management sector in 2022?
We expect three areas to play a key role this year.

Firstly, we believe that embedded wealth will continue to grow. Many brands realize the long-term benefit of deeper customer relationships, increased loyalty, breadth of product range, and better customer experiences. Brands such as Google, Apple, and Uber have embedded banking services through BaaS and technology platforms.

In fact, the BaaS APIs segment is expected to grow 17% CAGR by 2031 by embedding their services into context-relevant consumer journeys. And these financial providers now realize the benefits of embedded wealth management-related services, in particular to leverage a US$100 billion revenue opportunity jointly with embedded finance orchestration systems.

Secondly, we believe that sustainable and impact investing will increase. This is reinforced by various bank reports including the Morgan Stanley’s Sustainability Report. It highlighted that sustainable investing funds have already outperformed traditional funds. Global ESG assets will exceed US$53 trillion by 2025. This comes as no surprise as ESG investment need is being facilitated by the COP26 pledge, easy, low-cost self-service investment platforms, embedded wealth, and a growing interest by Millennials. This segment is increasingly likely to make investment decisions for ethical reasons.

To support this audience, there are already apps such as Clim8 or Tickr which offer ethical investing options. Through embedded wealth, super-apps could leverage the vast amounts of data they already have on their users and target different investment products to support their customers’ ESG aspirations. And ESG services (through screening and similar other approaches) can be offered to individuals according to their preferences.

And our last expected focus will be that Blockchain technology and digital finance will go increasingly mainstream. We are in the very early days of transitioning to Web 3.0. This focuses on decentralizing digital services, securing user privacy, and opening up data for intelligent applications based on machine learning. With its combined emphasis on security and transparency, Blockchain enables cryptocurrencies and is the same technology that enables Web 3.0 apps.

We believe that as users gain access to Blockchain-based assets like non-fungible tokens (NFTs), they will become more popular. Big banks and hyperscalers will blend digital assets with traditional assets in ways palatable to mainstream investors. Goldman Sachs and Morgan Stanley have made moves to facilitate client investment in digital assets – we expect more of this in 2022.

Market status

How should wealth managers tackle these themes? What targets should they be setting?
Wealth clients are looking for better intuitive experiences and access to bespoke investment solutions according to their individual needs at a reasonable price. Rising inflation and richly valued asset classes will bring the topic of asset preservation to the fore.

During the Covid-19 confinement period, one of the largest retail banks in Switzerland, PostFinance, launched a seamless and engaging experience to both advisory and discretionary customers, and, unsurprisingly, it is seeing a very strong take-up.

PostFinance’s success can be attributed to recognizing the importance of giving clients a choice regarding interactions with their bank. There will be periods when bank clients wish for independence, and at other times they’ll seek guidance on the risks involved. They might even want the bank to handle everything. A hybrid approach enables this.

A hybrid model allows clients to be offered the service that best suits their individual needs and choose how they want to be serviced. However, there is a common misconception about one aspect of a hybrid service: the self-service approach. It is often confused with roboadvisor online wealth management platforms, which offer automated portfolio management, but these are poles apart. A self-service model allows clients to gain insights and complete actions that an advisor would have previously undertaken.

Focus & solutions

What is your role and what does your business offer to support wealth management firms?
We built and launched our Embedded Wealth platform in mid-2021. Initially in Europe, and now we are expanding to offer our extensive ecosystem of partners to support the growing need for wealth management solutions to be embedded as part of context-relevant user journeys.

We offer end-to-end wealth services that any brand can easily include, either tightly integrated into an existing client-journey, or as standalone services. We provide the embedded finance orchestration platform and work with regulated finance partners to fulfil the complete customer journey.

Our BaaS model also uses DFS. It links regulated wealth management services with the brands that wish to embed them into their offering. In practice, this means providing APIs for interaction, the orchestration along the wealth management value chain, and the intelligence to integrate services into user journeys at a customers point of need.

Our conversations with financial institutions, consumer platforms, and large employers indicate that no other vendor fully supports embedded wealth or offers access to a dedicated embedded finance operating system. In fact, Geneva-based consultancy aperture recently published a methodology assessing wealth management technology vendors. Their report (Digital Age Wealth Management) rated additiv as a top ‘Transformer,’ stating, “In terms of business model enablement, we see additiv as best-in-class. The solution can be deployed with out-of-the-box user agents or headless, using existing or third-party customer interaction channels. This makes the solution ideally suited for wealth management-as-a-service models”.

How will your firm further develop its offering to support the evolving needs of the wealth management sector?
In 2021, we partnered with several BaaS providers to offer a range of services to support platforms embedding wealth. These include Saxo Bank for access to broker and custodian services, Kidbrooke for financial analytics APIs, and Bricknode for Brokerage-as-a-Service. In 2022, we are ramping up our range of partners to support Banking-as-a-Service.

Our collaboration with Nordic partners including Evida was the first in what we hope will be a material pick up with end-to-end wealth management services across Europe. In addition, we will launch embedded wealth in the Middle East early 2022 and later in APAC followed by pension and impact services across Europe.

This article is from The Wealth Mosaic's WealthTech 2022 Report. Access the full report here.