The rise of the digital investor

  • Legal update

    18 June 2021

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On 15 June 2021, the Financial Services Council (FSC) presented the findings of its report ‘Money & You – The Rise of the Digital Investor’ (the Report) to an audience at the Ernst & Young offices in Auckland. The report demonstrates what FSC CEO Richard Klipin describes as “a transformational shift in how we are choosing to invest our money”.

The Report is available here.

Who needs to read it? Why?

The Report will be of interest to FinTech businesses and those providing more traditional financial services, as it will help them understand the market trend towards digital investment.

What does it cover?

The key findings of the report are four-fold, namely that:

The investment landscape is seeing the rise of the digital investor

The Report found that investing in New Zealand and international shares and cryptocurrency has risen in popularity, with a reported increase of 6-7% since March 2020.

This increase is also mirrored by the rising popularity of micro-investing platforms such as Sharesies, Stake and Hatch. The Report found that 38.2% of those surveyed now either used micro-investing platforms or were planning to use them. The use of these platforms is even more prevalent amongst younger people, with 55% of Generation Y (39 years old or younger) surveyed either using or likely to use them.

There is a rapid rate of technological change, accelerated by Covid-19

The Report also notes that global rates of online adoption are three to four years ahead of expectation, with there being a 64% global consumer adoption rate for new technology. This has been accelerated by Covid-19, as the inability to access services face to face has forced many people to conduct their activities online.

Here in New Zealand, the report notes that despite increasing in popularity, there is still room for new digital services to expand as currently less than half of those surveyed said they were using or planning to use digital wallets (e.g. Apple Pay and Google Pay), buy now pay later services, micro-investing platforms, digital currency platforms, and robo-advice tools.

Traditional technology is well used in older generations; new not so much

While mainstream online financial services such as online banking are now well used by older generations, the Report shows that there is less interest amongst this group towards adopting newer online financial services such as digital wallets, buy now pay later services, and micro investing platforms. For instance, only 16.3% of those aged 60 and above surveyed said they were either using or planning to use buy now pay later services, when compared to 62.2% of those surveyed who were aged 18-29.

Cybercrime poses a national security challenge on a global scale

Finally, the Report reveals that concerns around personal information, security, and fraud are universal. Most respondents surveyed were concerned about the risk of online fraud, identity theft, or scams that could result in financial loss, with only 20% of those surveyed saying they were either not concerned or not particularly concerned. This unease mirrors the increasing number of cyber-attacks, including malware and phishing, which have occurred in New Zealand, with a reported increase of 65% since 2017 to 7,809 incidents.

Our view

Ultimately, the findings of the Report reinforce the change that most people already knew was happening in the financial services industry, one that has been accelerated by the effects of Covid-19. While there are legitimate concerns about the security and privacy arrangements behind these new technologies, these are more than outweighed by the benefits that they bring to the market in terms of competition and choice for consumers. This is already reflected by the swift uptake of micro investing platforms by consumers, especially amongst younger people.

This trend is causing significant disruption to legacy providers in the market, tipping the balance of power towards more innovative platforms which can adapt and keep up with the changing needs of consumers. Only those providers which can keep up with this change will grow. Those legacy providers which are unable to do so risk becoming the future Kodaks of the financial services industry, out of fashion and squeezed out of the market.

What next?

For participants and new entrants to this market, digital investment and online platforms raise different legal and regulatory challenges to their face-to-face or paper-based competitors.

We have helped many of the significant participants in this market develop their compliance and address the complex issues around operating at the intersection of law and technology. If you need help, or want to enter this market, please contact one of our experts.