Digital Marketplaces Unleashed
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33.2.1 Wealthy Internet Savvy Investors as an Attractive Showcase Segment
Wealthy internet savvy investors can be characterized by two dimensions: On the one hand they are open for innovative technology and apply modern communication, thus belonging to the about 75% of all EU citizens that form the community of internet users.6 And they are also part of those 60% who use internet or mobile for banking and/or brokerage [18].
On the other hand these digital natives have money to invest, either in cash or in any form of securities, like stocks, bonds or mutual funds (‘liquid monetary assets’; with investments in real estate, alternative investments, commodities etc. as well as pension entitlements not being considered). Wealthy internet savvy investors work with banks, brokers, financial advisors and financial sales organizations to fulfill their financial requirements. But they do not only belong to the small group of high net worth‑/ultra high net worth‐ or affluent‑/mass affluent‐individuals at the top of the wealth pyramid7. Instead they form the mass market of individuals who have to invest (at least some) money and want to increase their fortune. Taking Germany as an example, they represent about 15% of the country’s population above the age of 18 years and own liquid monetary assets of EUR 600 to 700 billion.8
Quantity and magnitude of their accumulated wealth make this broad sector of the population an attractive customer segment for the financial services industry and a focus area for Fintech entrants as well. An extrapolation of the German figures to EU‐level should give a range of assets of between €3500 to 4000 billion held by the respective between 70 and 80 million individuals in Europe. Applying a gross revenue margin for asset management of 1%, European wealthy internet savvy investors offer a gross revenue pool of about €35 to 40 billion for the financial services industry.9
This estimate of gross revenue might be too conservative and a doubling of the presented range for the near future should be considered: On the one hand the researched group in Germany as well as the extrapolated population in Europe does not include people 65+ years, which make up approx. 20% of the German and 18% of EU population. This group is also a target group of banks and brokers and therefore should be in the focus of Fintechs as well: It has to be regarded as above‐average moneyed. But it shows a lower than average propensity to deal with digital media and equipment, thus it might be less straightforward to be targeted and reached by digital offerings.
On the other hand digitalization is not static. In the near future, the general public will get more and more comfortable to follow the digital natives interviewed and make use of digital media and equipment for their banking and brokerage needs: On average as opposed to the researched wealthy internet savvy individuals, only 51% of the Germans use the internet for banking/brokerage. The European average is 46%. However, some countries show a much higher usage already today that can be regarded as a benchmark for the near future: France and the UK 58%, the BeNeLux countries between 62 and 85%, Scandinavia between 85 and 90% [18].10
33.2.2 The Grass Is Always Greener on the Other Side of the Fence
Looking at the researched wealthy internet savvy investors aged 25 to 65, about 65% of them show special interest in all aspects of managing money.11 This interest is far greater than in other financial services products as e. g. payment services and credit cards with 33%, insurance products with 30%, real estate financing with 27% and financing a new car with 18%.
The special interest slumps with age but it increases with net household income and liquid assets. As an example, 84% of individuals worth €100,000+ express special interest in money matters.
30% of the respondents say that that they use only one bank for the investment/management/custody of their liquid assets.
But 70% keep (at least) a second relationship with another financial services provider where they deposit cash, hold securities or trade stocks, etc.12 A relationship with another financial player has to be regarded as an act of reduced loyalty, looking through the eyes of the management of a bank that provides asset management services to their customers (and wants to keep or even increase this business) [25, p. 361].
Yet, opening a second relationship does not need to result in a complete relocation of the former liaison; it might only lead to some cherry‐picking outside the original connection: Customers are attracted e. g. by slightly better interest rates, more valuable investments tips, a friendlier personal advisors in the branch or a more modern, attractive digital offering from one of the new Fintech entries. The checking account and the mortgage might stay with the ‘old player’, but liquid assets will be transferred or new monies from a gratuity or the sale of real estate will directly find a new home.
The high proportion of multi‐bank usage leads to the question of satisfaction of the wealthy internet savvy investors with their current banking partners. The above Table indicates that on average 73% claim to get good or even very good advice from their main bank, and 58% from their secondary banking relationship as well (see Table 33.1). Table 33.1Satisfaction levels of wealthy internet savvy investors (top 2 grades of 6, in %)
Liquid assets (EUR)
Up to 50,000 (in %)
50 to 100,000 (in %)
More than 100,000 (in %)
Average (in %)
Main bank relationship
‘Get (very) good advice’
72
77
72
73
‘I think that investment opportunities on offer are (very) satisfactory’
59
59
59
59
Secondary bank relationship
‘I get (very) good advice’
58
58
61
58
‘I think that investment opportunities on offer are (very) satisfactory’
60
61
55
59
‘I am looking for better investment alternatives for my assets’
43
61
67
49
It is also remarkable that the investment opportunities on offer are also regarded as (very) satisfactory, more or less irrespectively whether main or secondary providers are used and also independent from the magnitude of the liquid assets owned by the respondents.
However, on average half of the wealthy internet savvy investors state that they are looking for better investment alternatives for their assets. This is particularly true for the wealthier segments with more than EUR 50,000 or even more than EUR 100,000 to invest.13 14 The observed high level of satisfaction with advice and investment opportunities offered by the current institution(s) is contradictory to the claim that customers are looking for better investment alternatives for their assets.
Obviously better investment alternatives can either be expected to be offered by the existing banking/brokerage partner(s). Otherwise, better investment alternatives are searched for and originate from a new relationship. Therefore, it was researched whether wealthy internet savvy investors agree with the claim the grass is always greener on the other side of the fence. This means that those who agree undertake the burden to change banks, at least open a new relationship, and voluntarily undergo the necessary bureaucratic hurdles imposed by know‐your‐customer and anti‐money‐laundering regulation. As a consequence, the revenue pool of the incumbent bank will diminish: 25% of the wealthy internet savvy investors do not envisage shipping their liquid assets from their traditional banking and brokerage partners to (new) specialized institutions for deposits, asset management or brokerage. For answering this question, respondents were informed that these specialized firms would offer tailor‐made investment opportunities as well as independent advice, present reputable products with appropriate risk‐retur
n‐profile, and would have the same guarantee level as their current bank(s).
However, 38% might envisage working with those specialized institutions – although on average 70% already have a secondary relationship for managing their liquid assets.
The consensus that the grass is greener on the other side of the fence is even higher amongst those internet savvy investors owning more than €50,000 (43%) or more than €100,000 (48%).
In addition, investors in the highest monthly net income bracket of €6000+ agree with 51%; real estate owners concur with 43%.
Only 26% of internet savvy investors aged 60 years+ might envisage shipping their liquid assets; the highest consent of 50% is found in the age range from 30 to 40 years.
These numbers indicate that wealthy internet savvy investors ‘hang on but keep digging’, particularly if they are younger, earn an above average salary, own a (paid‐off) house and have accumulated a bigger then average fortune.
33.2.3 No Clear Preference for Digital vs. Analog – But Personal Investment Advice Appreciated
Wealthy internet savvy investors offer opportunities and threats for all players in the financial industry. The winners can be traditional and established firms that are able to convince new customers with e. g. proven quality or sound reputation. But winners might also be the new Fintech entries on the marketplace with innovative products, seamless digital processes or an attractive pricing. Fig. 33.1 answers the question what service is expected by those who go for a new/additional financial partner for deposits, asset management or brokerage – online, mobile, phone, social media or personal. As there is no clear preference for one service channel, wealthy internet savvy investors may be regarded as being hybrid – somewhere between being attracted by digital offerings and capabilities, but also sticking to human interaction.
Fig. 33.1Required service channels of (new/additional) specialized institutions for deposits, asset management, brokerage (German wealthy internet savvy investors, aged 25 to 65; multiple selections possible). (Altenhain [15, p. 233])
Slightly above 60% want to be serviced online through the providers’ websites. Slightly below 60% of the wealthy internet savvy investors name personal advice as their primary required form of service delivery. Both channels claim about the same level of importance.
Advice by phone is asked for much less than both preferred service channels, but is looked upon as the most preferred fall‐back offer.
Although the researched customers belong to a tech‐friendly and internet savvy segment, they do not expect their partners for deposits, asset management or brokerage to offer mobile or social media services. This might be explained by mobile and social media being used predominantly for information gathering and information sharing; it looks like the media (at least today) are not in focus of wealthy internet savvy investors when looking for advice, opening an account, shipping money, making a transaction, etc.
An even deeper insight in customers’ (hybrid) needs is gained when asking the wealthy internet savvy investors whether they appreciate human support when looking for new/additional financial partners:15 51% deem personal advice by human experts as (very) important when trying to find the best specialized institution for deposits, asset management or brokerage.16
And 70% of those who go for personal advice might consider working with the proposed new/additional financial partner – which is about double the amount of the above reported average of 38% of all respondents.
As a consequence, availability of personal advice has to be regarded as the key driver for answering the question of whether to add a new banking/brokerage relationship, with whom to liaise and how much business to transfer over to the new partner. Personal advice seems to be the underpinning for stepping over the fence and finding out whether the grass is greener out there.
33.3 Opportunities for New but Also Established Players
According to the research findings reported in this paper, wealthy internet savvy investors can be regarded as an attractive customer segment: They like to deal with money matters and more than two thirds of them already work with more than one dedicated bank or broker.
They are highly satisfied with the advice they are getting from their financial partners as well as the products and services.
However, every other investor is looking for better investment alternatives for their liquid assets. This is even more applicable for the richer and younger individuals.
Consequently, almost half of the respondents, depending on wealth, age and income level, might open up additional relationships with financial services providers dedicated to servicing, managing and brokering liquid assets.
This new orientation of the investors provides a significant opportunity for those institutions that can capture the business, be it the incumbents of the industry or the new Fintech players: Wealthy internet savvy investors are identified as an attractive market segment for the financial services industry worth billions of EUR in gross revenue.
Does this mean that the Fintech companies as digital newcomers will take it all, thus kicking the traditional players out of the market? The research presented in this paper does not support this threat to the incumbents, as a significant portion of the wealthy internet savvy investors has to be regarded as a hybrid consumer segment – positioned between being highly responsive for modern technology and similarly distinctively prefer human interaction.
Responsiveness for modern technology …
The respondents are digital citizens who are use modern innovative technology to perform their digital needs, to communicate and search for information digitally, to shop on digital marketplaces and to achieve their banking and brokerage needs digitally.
All this explains the high affinity to players that present themselves as digital. As a consequence, they might source their banking and brokerage needs from the new Fintech players. The successful development of this fairly new cluster of industry players is described in the first chapter of this paper.
However, wealthy internet savvy investors might also rely on the established incumbents that they have been working with for a long time – obviously only with those that have understood the investors’ digital demands and have geared up their digital offerings and capabilities to meet the digital natives’ financial needs. An example for traditional players ‘reverse‐disrupting’ the Fintechs and tying in their established customer base can be found with the so called robo‐advisors in the United States.
Robo‐advisors are automated software platforms for financial advice, usually targeted to smaller portfolios and promising lower fees, but in general applying a standardized, algorithm‐driven investment management approach. The biggest robo‐advisors are Betterment (USD 4 billion under management) and Wealthfront (USD 3 billion); both companies are Fintech ‘semi‐unicorns’ valued at approx. USD 700 million [26].
In early 2015, the major US online broker Charles Schwab and the worlds’ biggest asset manager Vanguard launched their own rob‐services. Meanwhile, they have surpassed the new players in terms of assets under management (Charles Schwab USD 5+ billion; Vanguard 12 USD billion). The main reason for this volume buildup was the ability to convince existing customers to shift their assets from other (potentially endangered) product areas to the new robo‐services, thus protecting these assets [27–29]. Similar developments might happen in Europe as well, with banks like Barclays Bank, Deutsche Bank, Lloyds Bank, Royal Bank of Scotland, Santander Group and UBS Group recently having announced to launch, buy or partner with robo‐services.
… as well as preference for human interaction
The broad demand of the wealthy internet savvy investors for digital financial products and services is obvious. But this does not mean that all members of the analyzed customer segment will c
ompletely shift their demand from traditional person‐to‐person banking to the internet/mobile world. A large percentage shows an equally high preference for personal/analog delivery. In addition, half of the digitally educated individuals prefer personal advice on their choices – they ask for human guidance and answers to questions which financial partner to choose, be it new vs. traditional, but also digital vs. analog offerings. The following sections discuss some hypotheses on three typical, generic customer profiles and outline opportunities for new, but also established players [30, p. 242 f.]. (a) Self‐directed investors: Within the attractive but hybrid consumer segment of wealthy internet‐savvy people, there are self‐directed individuals who do not want to or do not have to rely on personal advice. For more than two decades they have had the opportunity to work with online banks and direct brokers; they are able and willing to inform themselves about their choices, take the necessary decisions and perform the bureaucratic activities needed to manage their liquid assets. They might find the following new Fintech offerings attractive (in brackets: examples for companies): search engines dedicated to financial products (voola),
services that comb through social media for investment trends (stockpulse),