Category Archives: Finance

Posted on Fri, Jun 13, 2014 @ 7:00 am


The Old-Fashioned Way

In the late 1970s, the actor John Houseman starred in a famous commercial for a well-regarded old-line investment manager of the time.  There he is in his dark suit and bow tie, informing you that investing is hard work and that by engaging them as your financial advisor, you too could make money the old fashioned way.

Technology is revolutionizing and reconfiguring many industries, and the financial services space has certainly benefited from many technology innovations.  But, up until quite recently, the wealth management and business lending spaces in particular have run pretty much the same way they did back when John Houseman was on TV.  Let’s look at wealth management first and then tackle small business lending.  In both cases, new technology companies are using software to enhance and open up products and services to a whole new audience, especially benefiting those with smaller and more straightforward needs.

The New Wave in Wealth Management – Online Advisory Platforms or “Robo Advisors”

The process of personal investment management has traditionally meant seeking out an investment advisor or trying to do it on your own with limited tools.  In addition to the high fees for such personal advice, these investment advisors can typically have high initial minimums which can leave a new investor out in the cold.

Enter the “robo advisors.”

This is a really bad name for what may be the biggest innovation to hit wealth management in decades.  Let’s instead call them “online advisory platforms”.  Starting around 2010, a number of firms started developing online systems which use easy to visualize sliders for establishing a client’s goals and risk tolerance, and then using these inputs they automatically invest client money in diversified investment strategies.  By using primarily Exchange Traded Funds, they keep costs and turnover down, and the system continues to invest and rebalance according to what their algorithms and calculators decide is the best risk/reward profile for the customer.

Firms such as Betterment, Wealthfront and FutureAdvisor now offer these platforms with taglines promising “premium investment management for everyone” and “sophisticated online financial advice”.  While these technology-enabled services, with low or no human interaction, will be the first to admit that they do not provide everything that a personal financial planner and large investment firm might offer, they do offer a very easy starting point with no or very low minimum balances required and low fees.

Their graphical and simple user interfaces are ideally suited for younger, more tech-savvy individuals who may just be starting to think about investing for their future.  In addition, these platforms allow you to start with hundreds of dollars to invest, not millions, and make it easy to get started.  They offer a standardized, easy to understand model to save for one’s future.

These companies do not at this time provide what top financial advisors do – things such as coordinated estate planning, and tax and insurance planning.  They also do not provide as comprehensive a process to help the client understand their funding needs and life goals.  But what they are clearly offering is a new easy access point to help people start investing.  A key tenet of any wealth management plan is START EARLY!  And these new technology/financial hybrids give a new generation a new-fashioned way to do so.  They have used software to transform the prevalent business model and open it up to the next generation.

The New Wave in Small Business Lending – New Non-Bank Online Loan Providers

Small businesses with a need for a quick cash infusion face a daunting task when looking to establish an initial lending relationship with a large bank.  Similar to the case for small investors starting out, the barriers to entry for getting a business loan when you have a great idea or a small start-up business can be nearly insurmountable.  Big banks just aren’t interested in small loans, or they may require more collateral than a small business has available.  Plus, the administrative processes most banks have in place are too much hassle and usually end with a big NO afterward anyway!

Enter the online alternative lenders.

Starting several years ago, firms such as Kabbage, OnDeck and CAN Capital now offer the promise of a very fast lending decision based on a strictly online application and streamlined acceptance process.  The fully online application typically takes only a few minutes to complete, and the loan approval algorithm is also usually completed within minutes.  Funding can be done sometimes within one day.   In the case of OnDeck, it has developed proprietary software to aggregate data about a business’ operations.  An algorithm processes the data and determines whether or not the business will be approved for a loan.  Unlike traditional bank loans to small businesses, OnDeck evaluates business performance rather than the borrower’s personal credit history.  These services cater to small businesses with relatively small and short-term financial needs.  Not surprisingly, those starting or growing online businesses find an online lender particularly attractive.  So software has enabled a different way of viewing and processing business loans and has brought this to a new segment of the business market.

These technology-enabled lenders offer a new avenue for a new era of entrepreneurs.  To be sure, this is a not a panacea and is not for everyone.  These niche players focus only on short-term lending needs and do not provide the variety of services one would find at a big bank.  In addition, they typically charge considerably higher interest rates than a large integrated financial institution would for a business qualifying under their more stringent credit standards.  Also, some providers will require a personal guarantee to back up the loan, while other loans require payback of principal and interest throughout the loan, making the effective interest rate higher than a comparable term loan.

In this area, as with wealth management, new financial technology companies have found an underserved market and these companies are helping new businesses to grow through the innovative use of technology and a new lending business model.

Posted on Mon, Jan 13, 2014 @ 7:00 am

Forrester Research has used the phrase “software-is-the-brand” to describe non-tech companies who are finding that more and more of their business value is coming from software-based products and services:

“It is the software that operates at key mobile customer touchpoints, defines the interaction with the consumer, and, ultimately, acts as the main product differentiator.” 

(Forrester Research, Inc., Non-Tech Companies Become The New Market For Software Product Development Services, August 2013).

Financial Services

Forrester specifically names the following four industries as becoming “increasingly software-centric”:

  • Information Services
  • Retail and eCommerce
  • Media and Entertainment
  • Financial Services

For those in the financial services industry, there are several software endeavors that businesses are finding they must undertake in order to stay competitive in this modern age. Below is a highlight of Object Frontier’s software assessment of this industry:

Financial Services – Software that Defines Your Brand

  1. Mobile Banking has become a critical avenue for financial services companies to engage customers today. Individuals can check their personal accounts, transfer money, make a deposit, and pay their bills whenever and wherever they want. This round-the-clock access ensures banks are meeting the needs of their modern, on-the-go customers.
  2. Treasury Management Software that provides businesses with a mobile-friendly financial management dashboard which sources data from multiple places and presents it in one, easy-to-use dashboard, including real-time stock prices, news, and alerts, will help businesses quickly make informed strategic financial decisions, whether in the office or mobile.
  3. Wealth Management Software that is optimized for mobile and with an intuitive, user-friendly design allows financial services firms to better serve high net-worth individuals by providing a simplified way for these clients’ personal wealth administration staff, advisors, tax preparers, lawyers, and others to access the information they need in a secure, streamlined way and to present a real-time and complete view of their investment portfolio. Some of the more advanced tablet-based tools allow advisors to rebalance a customer’s portfolio right in front of them by simply pinching or expanding the pie slice displayed to increase or decrease a customer’s percentage of equities for example, and then generating a proposed list of rebalancing trades.
  4. Mobile Insurance Apps let customers easily find an agent, pay a bill, update their policies, and make a claim at any time, including photographs and maps of the incident area. All these features provide customers with hassle-free, streamlined access to the services of their insurance company at the times they need it most.
  5. Gamified Personal Banking Software, currently being used by some of the largest financial institutions, incents individuals to focus more on their long-term financial health and encourages investment. By applying gamification principles of motivation and mastery, and by creating software that utilizes points, levels, awards, and competition, users can feel rewarded in the short-term as they shape their long-term financial future. Through gamified experiences, businesses can encourage users to determine their risk/reward profile, choose the right financial investments, plan for retirement, buy life insurance, and educate their children on financial principles in order to positively influence their real-life financial behavior.

All of these new uses for software in the financial services industry are becoming necessary table stakes for businesses to compete in today’s digital world. Forward-thinking businesses are continually searching for new and innovative ways to use software technology to enhance their offerings, making software now an essential part of their brand. Businesses are now actually considering software like one of their products, as they are finding they must put the same innovation and design into it as they do their core products.

For financial institutions to fulfill their software aspirations, they will “need the discipline, agile processes, and technical know-how associated with PDS [Product Development Services] firms, which is separate from traditional IT services,” as Forrester emphasizes in the report mentioned above.

The product mindset of a PDS firm is essential to developing branded software, as it allows you to:

  1. Adopt an agile methodology to produce early and measurable results in order to keep up with the competition in the feature wars that often ensue as they copy your innovations.
  2. Redesign and rebuild the backend technologies to transform the total user experience and breakdown the silos of transactional processing systems.
  3. Create an innovative user experience (UX) that will engage your customers and redefine your brand.
  4. Release software in a disciplined manner to provide regular improvements that meet the changing needs of your customers.
  5. Adapt quickly to user feedback in order to please customers and avoid a social media nightmare that can instantly ruin your reputation.

These benefits of a product-focused approach are necessary for creating worthwhile software assets for your business. Forrester explains in the same report that any “attempts to assign these activities to internal IT departments — which have traditionally focused on maintaining and developing slower-changing environments — have led to problems and, ultimately, the creation of a separate product development/software company” within the organization.

Product development companies specialize in building innovative, revenue-driving software and they are increasingly being tapped by non-tech, “software-is-the-brand” companies to bring that same expertise to their software projects in order to engage customers and drive revenue. Those that choose to ignore this trend face the prospect of being left behind by their competition as they redefine themselves with their software.