Wealthtech comes in response to the convergence between digitalization and the investment and wealth management sector. The way in which the assets and savings of both companies and individuals are currently managed is far from the one used just a decade ago.
The democratization and extension of certain types of services and aspects caused by the online boom have meant that tasks and processes previously exclusive to experts in wealth management, investments and savings are now directly in the hands of users and companies thanks to a series of intuitive digital tools that innovative startups make available on the internet.
Wealthtech, from the union of the terms “wealth” (savings, investments or patrimony) and “tech” (technology), has emerged within the so-called “X-Tech” terms to bring together under the same subsector a series of companies, initiatives and digital tools focused on the management of investments and savings.
Although some of the investment management processes have already been digitized for a long time, we understand Wealthtech, in addition to the application of online and technological solutions in this area, as the emergence of totally innovative and disruptive services and tools that are put in the hands of the end-user and not so much of intermediaries.
In the same way, we use the term Wealthtech to talk about the integration of next-generation advances such as artificial intelligence, machine learning or advanced application of big data to investment management. These cutting-edge techniques are available to both end-users and investment management professionals and experts through the digital platforms and products created by technology companies focused on this area.
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The Wealthtech ecosystem
In this way, we can see how the Wealthtech sector is composed, differentiating its initiatives and companies between those with a B2B focus on advanced technology services for professionals and companies specialized in investments, wealth and savings management, and others aimed at to the B2C end-user adapted to the needs of the standard user.
Thus, previously unthinkable services have emerged reinventing the way of working with respect to investments and modify the rules of the game in the financial sector, composing a Wealthtech ecosystem that is organized by different types of activity and services:
- Marketplaces: Platforms that combine information on investments in such a way that they facilitate activities both in investment funds and in assets of all kinds.
- Investment tools: Companies in this category have created a series of digital tools to, for example, monitor portfolios, create notification alerts for seting goals, and manage investment planning.
- Compliance: It is the Wealthtech area, together with Regtech, in charge of ensuring regulatory compliance within the activities of the sector.
- Financial advisors: These companies are specialized in offering advice through the internet. They advise their clients by facilitating decision-making but do not carry out operations.
- Robo advisors: These digital tools perform automated operations on behalf of the user or client. They are passive management firms that invest in all types of instruments according to the configuration chosen by the user.
- Quant advisors: Born after the robo advisors, these platforms use artificial intelligence and machine learning to actively manage investment strategies.
- Trading platforms: they are aimed at users of all kinds, from experts to “amateurs”, serving as a digital platform to trade in real-time with a multitude of different functions.
- Algorithmic trading: Starting from the execution base present in the trading platforms, software that automates the trading actions operating in real-time has been created.
- Social trading/investment: They are born as a social extension of trading platforms, being able to share experiences and opinions with other traders or replicate their investment models. They can be understood as a way to merge and bring the reality of social networks to the area of trading and investments.
- Micro investing: Closely related to Fintech initiatives such as lending or crowdfunding, this area is specialized in promoting savings and investment through micro-credits or small investments.
- B2B software providers: A large category of startups and technology companies specialized in providing digital solutions of all kinds to professionals in the investment, savings, wealth and trading sectors. They develop disruptive software and applications to be used in the sector at the same time that they provide technical and technological support to investment firms.
- Analytics, big data: Analytics providers highly specialized in providing investment data analytics services, generally with a B2B profile.
Wealthtech has not only transformed the investment area but it has totally disrupted the way of understanding modern finance and the functioning of the economy, democratizing certain activities that were previously exclusive to experts and promoting knowledge and efficiency in financial processes.
Its relationship with Fintech
Just as we consider the area of investments and wealth management as a subarea within finance, we can consider Wealthtech as a subarea within the already consolidated and developed Fintech industry. This concept, with more experience and fully mature, has meant a total change in how we understand economics and finance today.
As in the financial sector, online operations in investments are regulated under a series of regulations that ensure the safety of both users and clients as well as of organizations, institutions and companies.
AML5 or 5AMLD (fifth anti-money laundering Directive) and eIDAS (electronic IDentification, Authentication and trust Services) give the fundamental regulatory framework in relation to online financial, banking and investment operations. These European regulations are the not only European but also global framework of reference to be able to offer online services in this area.
Download here for free our complete guide on AML5 and eIDAS.
It is important to understand that the rules that apply to the Fintech sector must be implemented in the same way in Wealthtech so that their companies can offer online investment services complying with the relevant regulations and the appropriate security, trust and guarantee standards.
Digital Identification, the key for Wealthtech services
Online fraud and identity theft entail a large part of the risks assumed by companies in any sector when operating in the digital field and remotely. In this way, working on online processes and cybersecurity is crucial for Wealthtech companies and initiatives.
In Fintech and the financial sector, it is known as KYC (Know Your Customer) to the process of verifying the identity of a user. On the online level, we define it as the eKYC(electronic Know Your Customer) process and we can corroborate with guarantees and legitimacy that the person who is carrying out operations behind the screen is who they say they are. Carrying out this process means complying with the relevant regulations given the AML controls that are carried out in it.
KYC, also known as client onboarding is necessary for users, both professionals and individuals, to access the Wealthtech online services that we frame within the B2C category. Once the identity of the users and clients has been verified, they can access the services and products with total confidence and guarantees.
Among the Wealthtech categories that we previously detailed, most are legally obliged to comply with the KYC process to give their users access to their services, such as marketplaces, trading platforms of all types, different advisory services or micro-investing.
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For the rest, those framed in the B2B plane, for the verification operations carried out between companies associated with the investments, KYB (Know Your Business) process is developed in such a way that Wealthtech businesses can establish trust online relationships with other companies and institutions.
Wealthtech identification solutions
This process must be carried out through video identification in real-time (streaming) in order to comply with the appropriate regulatory and security standards. Unlike processes based on images or sefiles, which do not properly identify the user and which can be falsified, video-streaming identification systems such as VideoID do fulfill this task with full guarantees.
In terms of digital identification in the Wealthtech area, it is also essential to take into account the electronic signature processes, for example, the acceptance of conditions, contracting or representative purposes within investments. Comprehensive solutions for simple, advanced and qualified electronic signature such as SignatureID, which strictly complies with the eIDAS standard, is used by Fintech and Wealthtech companies.
Authentication and 2FA (second factor of authentication) development techniques allow customers and users to access platforms and services without fear that their accounts will be vulnerable to fraudulent attacks. Solutions like SmileID based on advanced biometric facial recognition or OTP (One Time Password) have provided security and strength in the Wealthtech sector.
Contact eID through this form and request information about our digital identity solutions adapted to the Wealthtech sector.