It is a significant understatement to say that both the ICT and international financial services sectors are a major part of Ireland’s economic success. Ireland is a world leader in both. But imagine if you put them together.

Welcome to FinTech!

What is FinTech?

Financial technology, or FinTech, is what it says on the tin: any technology used to support banking and financial services. It’s not a new concept. Technology has always been a major source of innovation in banking and financial services. However, most technology innovation has been focused within the sector.

Surprisingly, up until recently, the traditional players in the banking and financial services sectors have not been as negatively impacted by technology-based competition as one would have guessed. There are very few PayPals out there. Banking and financial services have high barriers to entry and customers have historically been slow to change their relationships with these institutions. Regulation helps.

What has changed?

Firstly, we’ve changed. We don’t trust ‘the system’ as much as we used to. In the 2017 Edelman Trust barometer study, Ireland ranked near the bottom in terms of our trust in institutions. The financial crisis eroded trust in the established banking and financial services players.

Put simply, we have trust issues.

Secondly, we’ve entered a new era in information and communications technology driven by mobile ubiquity, cloud computing, social business, big data analytics and global connectivity.

Thirdly, regulation is changing to support an increasingly digital and networked society. These three factors together are democratising financial services and enabling new players – both established technology companies and start-ups – to enter the banking and financial services markets and challenge the status quo. Banking and financial services firms have no choice but to innovate, and innovate faster, to maintain their competitiveness.

Prof Theo Lynn (left) and Dr Pierangelo Rosati

Prof Theo Lynn (left) and Dr Pierangelo Rosati. Images: Dublin City University

3 things to watch

Recently, the Irish Centre for Cloud Computing and Commerce (IC4) and Dublin City University (DCU) Business School launched a new Finance Innovation Group and hosted the first in a series of free public symposiums on financial innovation. Speakers from Fintech Ireland, Accenture, Deloitte, Fidelity Investments, Coalface, Ostia Solutions, IC4, Mason Hayes & Curran, European Capital Markets Cooperative Research Centre (ECMCRC), Orca Money and IBM discussed various topics on FinTech, but here are a couple of things to watch:

1. Regulatory change is coming to payments in the EU and it will change everything

The EU Payment Services Directive 2 (PSD2) comes into full effect in 2018 and will regulate new forms of payment institutions, introduce new interaction models and mandate the opening of banks’ APIs to third parties. As Accenture’s Killian Barry illustrated, it will disrupt the payment sector dramatically and will open the gates of the banking fortresses to tech giants such as Google and Apple as well as innovators such as Stripe.

2. Blockchain is a slow train coming but it’s going to arrive

According to PwC, more than 77pc of financial services will adopt blockchain as part of an in-production system or process by 2020. According to Cillian Leonowicz, of Deloitte’s new EMEA Financial Services Blockchain Lab, blockchain has the potential to transform four key areas in financial services, namely: know your customer and anti-money laundering, settlement, voting, and corporation actions. As a result, blockchain will disrupt key processes in financial services worldwide, such as custody and trust administration services.

3. High-frequency trading is going to get faster and smarter

Dr Eleonora Monaco of the ECMCRC discussed the future of high-frequency trading (HFT). Popularised by Michael Lewis’s book, Flash Boys, and the associated film, The Big Short, HFT is a type of algorithmic financial trading at very high speeds. The consensus was that HFT is still going to seek to exploit higher network and computation performance, but a significant emphasis will move to seeking competitive advantage through artificial intelligence.

Ireland’s opportunity

The symposium at DCU ended with a panel discussion, and what became quickly apparent is that there is an amazing opportunity for Ireland in FinTech.

Firstly, we have a critical mass of global ICT and financial services leaders based in Ireland. Brexit is an opportunity and not a threat for FinTech, allowing us to build on our existing industry base and EU participation to exploit the opportunities of PSD2.

Secondly, Ireland has the support ecosystem, including graduates and workers, for many of the capabilities needed for success in the FinTech sector – analytics, customer experience, digital marketing and ICT infrastructure, to name but a few.

Thirdly, we have indigenous role models and centres of competence. Philip Berber (CyBerCorp), Colm Lyon (Realex, Fire) and, more recently, the Collisons (Stripe) are just a few of the entrepreneurs who have experienced international success in FinTech. Others have gone before and even more are coming to us. International centres of FinTech excellence are basing themselves here for a reason. Deloitte’s Blockchain Lab and Citi’s RIDL Centre are just two examples of multinationals recognising the potential of Ireland as a geographically advantageous and knowledge-rich country staging financial innovation.

Finally, we have a healthy and growing FinTech start-up sector. FinTech is a large, growing and –most importantly – addressable market. Irish start-ups are well positioned across the sector to not only disrupt incumbents, but to help banks and financial services innovate and compete.

More than a billion dollars has been invested in FinTech start-ups in the last 24 months, according to McKinsey. There is no reason why Irish start-ups shouldn’t get a better share of future funding.

Ireland has all the pieces of the FinTech jigsaw. There are exciting times ahead.

By Prof Theo Lynn and Dr Pierangelo Rosati

Prof Theo Lynn is the lead principal investigator and Dr Pierangelo Rosati is a postdoctoral researcher at the Irish Centre for Cloud Computing and Commerce (IC4) at Dublin City University. IC4 is a multi-institutional, industry-led research centre. Dr Rosati’s research focuses on organisational competences in accounting, finance and data analysis in the cloud.

With increasing difficulty in securing finance through traditional measures, SMEs have turned to new alternatives. By Prof Theo Lynn and Dr Pierangelo Rosati calculate the possibilities and the implications.

Small and medium enterprises (SMEs) are at the core of the Irish economy as well as of most economies worldwide. Despite the fact that SMEs employ the majority of the working force and their undoubted contribution to GDP growth, SMEs have historically faced a lack of external funding to boost their growth or to overcome temporary cash flow shortfalls.

Banks – local banks, in particular – have traditionally been the main and sometimes the only source of external capital for SMEs. However, increasing regulatory requirements have lowered the probability for SMEs to obtain access to bank financing.

‘P2P lending platforms act as intermediaries and provide additional services like risk assessment, payment transfers and portfolio management in exchange for a fee’

Peer-to-peer lending (or P2P lending) is not a new concept. Indeed, many entrepreneurs have the shared experience of borrowing or seeking investment from family and friends. Such loans and investments required little due diligence or risk assessment, and are largely determined by the strength and number of founder relationships and the financial capacity of individuals in these networks.

The widespread adoption of the internet facilitated the next generation of P2P lending. Online P2P lending platforms use the power of the crowd to connect small businesses in need of funding and potential lenders typically looking for profits. P2P platforms do not invest their own funds and do not provide protection for lenders; they act as intermediaries and provide additional services like risk assessment, payment transfers and portfolio management in exchange for a fee typically calculated on the basis of the outstanding capital.

The P2P lending landscape

Modern online P2P lending is taken to have started in 2005 when Zopa, a UK platform, originated its first loan. This was quickly followed in the US by companies such as LendingClub and Prosper.

Initial growth in US P2P lending was mostly driven by individuals seeking loans during the financial crisis when banks did not want to increase their exposure. In the UK, the market developed with a greater focus on loans to SMEs.

P2P lending is part of the wider universe of crowdfunding. This is a bigger market than many people expect. For example, a 2016 paper for the European Commission reported that crowdfunding expanded by 167pc in 2014 and reached $16.2bn. North America remains the largest market ($9.5bn), followed by Asia ($3.4bn) and Europe ($3.3bn). While there are no accurate figures on the Irish market, Orca Money reports that the UK P2P market had £9.6bn cumulative lending since 2010, £1bn of which was in Q1 2017. In 2016, Orca Money reported that the UK P2P market comprised 177,000 retail investors with consumer (46pc), business (35pc) and property (19pc) borrowers.

The P2P market is a large, growing market and should be interesting to investors, borrowers, entrepreneurs and policymakers in Ireland.

Online P2P lending arrived relatively late in Ireland, mostly due to greater regulatory uncertainty, the limited size of the market and the relatively poor conditions of the economy in the late 2000s. Even though the Irish P2P lending market has been growing over the last few years, it still accounts for less than 1pc of SME credit, with one platform, Linked Finance, accounting for more than 90pc of Irish P2P lending.

Institutional and professional investors v ‘the crowd’

Online P2P lending has become particularly popular among investors due to the low interest rates offered by central banks. However, it is well known in finance that higher returns come with higher risk.

P2P loans are mostly unsecured and, even though platforms pursue those borrowers who do not meet the repayment schedule, the full recovery of the capital invested is not guaranteed. As such, P2P lending is neither a saving investment nor a way to obtain constant payments since most of the loans tend to be repaid earlier than scheduled.

So far, P2P platforms have been very cautious about the loans they offer to investors, with most of them being classified as low-risk. This has resulted in low default rates and acceptable positive returns for investors. The potential for positive returns has attracted institutional and professional investors (eg investment banks, venture capitalist etc) into the game and created a disproportionate capital supply and demand. Such a trend is particularly visible in the US and UK, the two largest P2P markets, but it has recently emerged in smaller markets like Australia and New Zealand and is likely to occur, to a greater or lesser extent, in all regulated markets, including Ireland.

‘P2P lending is neither a saving investment nor a way to obtain constant payments since most of the loans tend to be repaid earlier than scheduled’

The participation of institutional and professional investors and the abundance of capital might create potential incentives for the platform to increase the risk of loans offered, or to favour institutional and professional investors over individuals over time. Institutional investors are particularly attractive for P2P platforms since they bring in more funds and are more likely to accept higher risk for higher profits.

This, ultimately, would translate into potential higher fee income for the platforms and may attract unwanted behaviour. What if junk loans are picked repeatedly by individual investors who can’t properly assess the risk of their investment and who can’t afford the loss? Such a trend, particularly if at a large scale, might look like déjà vu: a reliving of what happened right before the financial crisis.

But is this really happening?

The good news is, this doesn’t seem to be the case. A recent study we conducted in collaboration with Dr Ciarán Mac an Bhaird and Prof Mark Cummins at Dublin City University (DCU) actually shows that, not only do platforms not favour institutional and professional investors, but the more conservative investment strategy adopted by individual investors are actually paying off. ‘The crowd’ has obtained, so far, higher returns and faced lower losses than institutional and professional investors. Even more interesting is the fact that the larger the crowd, the better the financial performance.

Next steps in Ireland

Maybe we realised that, as James Surowiecki notes in The Wisdom of Crowds, “we’ve been programmed to be collectively smart” and that more ethical business practices are the key for more sustainable financial systems and for economic growth. Hopefully, we all learned the hard lesson and we are finally ready to exploit the benefits of the digital economy in a sustainable way.

The lack of a clear regulation has arguably prevented the growth of the Irish P2P lending market by discouraging both investors and small businesses to participate. A clear regulatory framework is necessary to ensure transparency and to increase investors’ confidence in P2P lending markets.

For example, the Financial Conduct Authority regulations, signed in 2014, were welcomed by both investors and platforms, since they build legitimacy around these new forms of investments and business models. The Irish Department of Finance is aware of the necessity for further discussion on this and launched a public consultation in April 2017 on the potential introduction of regulation of crowdfunding. This might represent the missing piece of the puzzle for the increasing adoption of P2P lending on this side of the Irish Sea.

By Prof Theo Lynn and Dr Pierangelo Rosati

Prof Theo Lynn and Dr Pierangelo Rosati are part of the Irish Centre for Cloud Computing and Commerce’s Finance Innovation Group, a research group comprising researchers with an interest in finance and financial technologies. The group is currently organising the 4th DCU Symposium on Capital Markets and Fintech, which will be held on Friday 8 December in DCU Business School.

Bitcoin’s hype, lawlessness and negative press could damage the wider potential of blockchain technology, argue Prof Theo Lynn and Dr Pierangelo Rosati.

In Greek mythology – or, for those more attuned to pop culture, in the Harry Potter series – the phoenix is a bird that periodically dies in flames only for it to arise, reborn, from the ashes.

The technology industry is awash with success stories that have arisen from the lesser successes or failures of earlier versions. Pinterest, the much-loved interest-sharing social network, started as a mobile shopping app called Tote. Android was originally intended to be an operating system for cameras.

Bitcoin is a digital currency based on cryptography, a crypto- or virtual currency that can be exchanged among people around the world without the intervention of intermediaries such as banks or governments. Unsurprisingly, it was, and it still probably is, a popular method of payment for those operating in the dark net  – terrorists, ransomware operations, drug and counterfeit pharmaceutical dealers, and pornographers are all commonly cited as bitcoin users by security services, media and academic studies. Why? Not only is bitcoin not regulated, through a process called bitcoin tumbling, it is increasingly difficult to trace any transaction through the bitcoin system.

What is blockchain?

As Financial Times technology reporter Sally Davies put it: “Blockchain is to bitcoin what the internet is to email: a big electronic system, on top of which you can build applications. Currency is just one.”

Blockchain is the technology that underpins bitcoin. It is an encrypted distributed (or decentralised) ledger of transactions shared across anonymous users on the internet. As such, it can be used for storing, securing, managing and validating all types of digital records and transactions, not just payments. Blockchain has the potential to simplify and improve how we store and validate all types of records including contracts, deeds and mortgages, as well as identity data.

‘Bitcoin has evolved as a trustless payment system. As such, it attracts a lot of so-called ‘bad actors’ and a lot of bad press’

Like Android, while blockchain was initially used for bitcoin, its potential reach and impact is much greater.

McKinsey reports that more than $1bn has been invested by VCs in blockchain ventures in the last 24 months, and the banking sector will spend a further $400m by 2019. So what’s the problem?

Bitcoin gone bad

There is no problem with blockchain per se; the problem is bitcoin. Bitcoin has evolved as a trustless payment system. It is largely anonymous, unregulated and has no central consortium guiding the technology infrastructure development. As such, it attracts a lot of so-called ‘bad actors’ and a lot of bad press.

Bitcoin relies on attracting more users to the network to mine bitcoins. As such, power users in the bitcoin economy market extensively to attract new users or miners by offering awards in the form of bitcoins. Our research at IC4 suggests that a significant proportion of the visible discourse (and arguable value-generating activity) on bitcoin is related to attracting and rewarding new miners, and not activities that legitimise bitcoin in the eyes of the general public or wider financial ecosystem.

Cui bono? Who benefits? Arguably, who benefits most from this activity are those using bitcoin as a payment or money laundering mechanism – the criminal underworld.

‘Bitcoin is the most (in)famous application of blockchain technology and yet it has evolved largely without guidance from industry or regulators’

The anonymity of the true power players in the bitcoin economy is exacerbated by lack of regulation. Clearly, lack of transparency and bona fides for those behind bitcoin make it difficult to police in the first place. However, introducing regulation of bitcoin is problematic even if one wanted to. It would require an international and synchronised coordinated effort. Bitcoin is extremely distributed and if a significant market, eg the US or China, decided to regulate bitcoin or access to bitcoin (through firewall prohibitions), it could significantly disrupt, destabilise and disincentivise use of bitcoin.

And yet, regulation is clearly needed. For example, in 2014, Mt Gox, one of the world’s largest bitcoin exchanges, suspended trading due to ‘losing’ a reported $473m in bitcoins through a combination of alleged fraud, theft and mismanagement.

Prof Theo Lynn (left) and Dr Pierangelo Rosati

Prof Theo Lynn (left) and Dr Pierangelo Rosati. Images: Dublin City University

Legitimising blockchain

Bitcoin is the most (in)famous application of blockchain technology and yet it has evolved largely without guidance from industry or regulators. It is not only trustless, it is standards-less and lawless.

Blockchain is the real story but it is the lesser-reported one. It is an opportunity worth billions of dollars and can transform how society stores and validates many of the records and transactions that permeate our daily lives. The 12th labour of Hercules involved entering the underworld to capture Hades’ three-headed dog, Cerberus, controlling him with magical chains. The potential of blockchain may only be realised by controlling bitcoin. Failing that, legitimising blockchain may require killing it.

By Prof Theo Lynn and Dr Pierangelo Rosati

Prof Theo Lynn is the lead principal investigator and Dr Pierangelo Rosati is a postdoctoral researcher at the Irish Centre for Cloud Computing and Commerce (IC4) at Dublin City University. IC4 is a multi-institutional industry-led research centre. Dr Rosati’s research focuses on organisational competences in accounting, finance and data analysis in the cloud.

Dr Pierangelo Rosati breaks down the alternative finance models for entrepreneurs and SMEs that have arisen since the global financial crisis.

Small and medium enterprises (SMEs) represent the backbone of the European and worldwide economies. According to Eurostat estimates, SMEs account for more than 99pc of companies in the EU, more than 66pc of employment, 60pc of value added and 56pc of investment. They also represent the main innovation driver in many sectors, and exploiting their full potential would benefit both the economy and society in general.

A major hindrance faced by SMEs in pursuing opportunities for growth, development and entrepreneurial initiatives is undoubtedly access to external financing. Traditionally, bank financing (loans, overdrafts, credit lines) accounted for the overwhelming majority of external financing, with the rest coming from equity contributions from the business owners, and effective debt and credit management with suppliers and customers. Difficulty in gaining access to bank financing was compounded by the global financial crisis (GFC) and it is significantly harder since the introduction of stricter regulatory requirements under the Basel II regime. We all know how severe the consequences of the GFC have been, and the constraints on bank lending have significantly amplified them, with SMEs paying the highest price.

‘These channels are ‘alternative’ in the sense that they are, for the most part, not provided by banks but from individuals and institutional investors’

The recent rise of technology-enabled financial services (fintech) has been able to, if not solve, then at least alleviate the shortage of external funding for SMEs by providing them with valid, alternative financing channels. Such channels, usually grouped under the name of alternative finance, are ‘alternative’ in the sense that they are, for the most part, not provided by banks but from individuals and institutional investors.

The two most successful alternative financing channels are peer-to-peer (P2P) lending and crowdfunding. Peer-to-peer lending, also known as ‘social lending’, is the practice of matching borrowers and lenders through online platforms. Borrowers are usually able to obtain funds quickly, and typically at lower interest rates than traditional financial intermediaries. Our recent research on the UK P2P lending industry, conducted in collaboration with Orca Money, shows a significant increase in the number of loans approved and in the overall volume of lending over the last few years. This appears to be driven by a growing interest of institutional investors in this fintech space.

By comparison, the crowdfunding model consists of raising small amounts of money for a project or venture from a large, potentially geographically distributed pool of people (the ‘crowd’). Again, this is typically achieved using an online platform. Crowdfunding can take different forms based on the benefits afforded to funders. The most common forms of crowdfunding are equity, rewards and donation crowdfunding.

The equity crowdfunding model is rather straightforward and similar to more traditional investment models. Funders are real investors who obtain, in return for their investment, a beneficial interest in the form of a shareholding (equity) in the company. In the case of rewards crowdfunding, funders receive, unsurprisingly, a reward, generally in the form of free products or discounts. Lastly, the donation crowdfunding model implies simply that – a donation – wherein the donor receives no explicit compensation for their financial support.

‘Alternative finance channels generate undeniable funding and growth opportunities for SMEs and entrepreneurs. However, they also present challenges’

Alternative finance channels generate undeniable funding and growth opportunities for SMEs and entrepreneurs. However, they also present challenges due to a limited or uncertain regulatory landscape that companies and regulators must both carefully navigate.

Recent trends and future perspectives of P2P lending and crowdfunding, as well as the opportunities and challenges they create, will be the focus of IC4’s 2nd Symposium in Capital Markets and Fintech, organised in collaboration with DCU Business School and DCU Alpha. This half-day event will take place from 9am to 1pm on Friday, 9 June in DCU Business School, and will bring together leading industry experts and academics who will cover the various facets of P2P lending and crowdfunding.

We look forward to seeing you there.

By Dr Pierangelo Rosati

Dr Pierangelo Rosati is a postdoctoral researcher at the Irish Centre for Cloud Computing and Commerce (IC4) at Dublin City University. Rosati’s research focuses on organisational competences in accounting, finance and data analysis in the cloud.

This new book was edited by Prof. Theo Lynn (DCU), Prof John Mooney (Pepperdine University), Prof Mark Cummins (DCU) and Dr Pierangelo Rosati (DCU) and features 18 Irish and international authors focusing on fintech innovations such as crowdfunding, algorithmic and high frequency trading, cyber-currencies, regtech, insurtech, machine learning and artificial intelligence and others.  Each chapter focusses on a specific financial technology and presents the insights and current thinking on how these technologies are disrupting and transforming financial processes and outcomes. ‘Disrupting Finance’ is an open access book so can be purchased in hardback but is free to download from Palgrave Macmillan’s website.

Speaking at the book launch, Prof. Lynn, Director of the Irish Institute of Digital Business, said: “Today, we are seeing the advent of a new generation of FinTech built on near-ubiquitous access to the Internet through mobile and cloud computing, machine learning, artificial intelligence and blockchain. These technologies are resulting in significant disruptive changes to the financial services sector, not least opening up the sector to increased competition and empowering customers in ways unthinkable just a decade ago.” He continued: “Ireland is a leading hub worldwide for both financial services and technology. Understanding how fintech creates, captures and delivers value is key to Ireland’s future success in both growing our indigenous industrial base and attracting foreign direct investment.”

Robert Mulhall, Managing Director – Consumer Banking, AIB, said: “AIB is proud to partner with DCU to launch this innovative open access book. Disruptive technology brings both challenges and opportunities to the financial services industry and real benefits for customers. At AIB, we continue to invest in our capabilities to take advantage of the opportunities that innovative technology brings. Fintech and Open Banking, in particular, allows AIB the ability to deliver greater digital customer experiences with increased agility and pace”

Welcoming the news Prof. Anne Sinnott, Executive Dean of DCU Business School, said: “DCU Business School is very much committed to a Digital First strategy. Irish Business Schools need to be at the forefront of curating knowledge on the state of the art in emerging technologies and how these technologies will impact the wider ecosystem. This book, ‘Disrupting Finance’, is both topical and timely but more importantly through Open Access is available for free to businesses, scholars, policymakers and the general public.”

Opinion: there may be generational and economic challenges for the sector, but the big picture is still about big returns versus small risks

The more things change, the more they are the same. In recent years, one might be led to believe that there has been a bloody revolution in financial services. There is a new ABC, and it’s algorithmic, blockchain and crypto. As the last of the millennials enter the workforce, it’s easy to think that the new financial services paradigm built on fintech literally comes with a go faster Stripe. Yet one segment of the financial services market, asset management, seems to be somewhat untouched by the finger of fintech, but this may be about to change.

Those millennials now leaving college and entering the workforce are doing so with the feeling and actuality of being less well-off than their parents. As their parents approach retirement, it heralds the largest wealth transfer in history. US millennials alone will receive about $30 trillion in assets from their parents, of which a whopping 30% will be in liquid assets. That’s potentially a windfall of $10 trillion for asset managers.

Unfortunately, the asset management sector faces three major barriers to capitalising on this potential good fortune: psychographics, technographics, and economics. There is also increasing evidence that millennials have different financial objectives and expectations than previous generations. They are not interested in beating benchmarks and want their financial advisor to help them meeting their personal and financial goals. They are also more price-sensitive and prone to try alternative solutions offered by new entrants and are therefore hard to retain.

From RTÉ Radio 1’s Morning Ireland, a report on more than 100 British based asset managers and funds who have applied to the Central Bank to move to Ireland because of Brexit

“The number one challenge for asset managers today is the democratisation of value to investors”, says Barry Gill, Head of Active Equities at UBS Asset Management. “In the past, you had to pay relatively high fees for some value proposition from actively managed funds. Nowadays many people, when buying equities, they only want to get the market return. This migration from active to passive has started in the 1970s, but it has boomed post-2008”

The asset management customer base has historically belonged to an older demographic expecting less frequent interaction with their asset manager. As digital natives become older, asset managers may be disintermediated from their customers by technology. Millennials are comfortable using technology so it’s no surprise that fintech solutions like robo-advisors are so attractive.

This does not mean millennials don’t value financial advice anymore. They prefer digital interaction to traditional face-to-face meetings with their advisers wherever possible, particularly for less value-added tasks, but still prefer human interactions for more “holistic” encounters that would help them face their financial challenges. Millennials expect asset managers to tailor investments strategies to their own objectives and to deliver a better customer experience through a unique combination of digital and human interactions.

Regardless of age or generation, investors will put their money where they get the biggest return with the least risk

There is also an economic challenge because asset management is just not as profitable as it used to be. The financial crisis heralded in a new era of transparency and regulation, shining a light on an industry that has been (too) opaque for a long time, and transparency comes with a cost.

In addition, asset managers face greater competition not only from new entrants but the democratisation of data. As Daniel Gerard, Head of Advisory at State Street, points out “democratisation of data and the ability to participate in and evaluate opportunities have been and will continue to be major disruptors to existing models. As a result, we will continue to see a narrowing of the gap between commoditised betas vs non-commoditised betas. This trend, combined with the increase in both supply and demand for commoditised betas, is particularly beneficial for consumers of asset management, but this development in the cost/revenue model of asset managers will continue to be a major risk factor for the industry overall”.

Traditional asset management is being threatened by agile fintech startups with no legacy IT baggage, with systems designed by and for a new generation of consumers. Will traditional asset managers be left behind? Probably not. Why? The answer seems to be a combination of sizzle and steak.

The sizzle

Size still matters in finance. While fintech startups are smaller and agile, they need access to market. Large progressive asset managers are leveraging their access to market to neutralise the threat of new entrants through technology partnerships. This provides a much-needed sizzle to the millennial market.

The steak

While not as sexy as robo-advisors and Blockchain, something like AI can optimise every activity in the asset management value chain from client onboarding to advice, portfolio management, etc. When it comes to investment strategies in particular, AI-driven solutions provide unique opportunities. They lower costs associated with portfolio management so that asset managers can start bringing the new generation into the funnel earlier and gain their trust before wealth gets transferred to them. AI algorithms can also be adapted to reflect the risk-return and investment preferences of specific client segments and these solutions would respond to the customisation requirements which are typical of the new generation.

Lastly, properly designed AI algorithms can absorb and quickly process large amounts of information which could provide constant access non-commoditised betas. These benefits are attractive for asset managers as they reduce costs and increase revenues.

The more things change, the more they remain the same

Man Group Plc. quintupled the assets under management of their algorithmic fund in a three-year window once they could systematically prove their AI could consistently beat the market. At the end of the day, asset management is about one thing: making money. The one thing that does not change is that capital flows to the most effective asset manager. Regardless of age or generation, investors will put their money where they get the biggest return with the least risk. The more things change, the more they remain the same.

Author: Dr Pierangelo Rosati

The views expressed here are those of the author and do not represent or reflect the views of RTÉ

The rise of financial technologies (FinTech) is opening the world to a host of new possibilities – but it also creates both business and organisational challenges for established players in the financial sector.

Technology and Financial Services have always gone hand-in-hand.  However, advances in digital technologies, combined with changes in customer preferences and financial regulation, have dramatically increased the speed of change in the last decade.  Technology is now not only a support to financial products and services but an integral part of them.  As a result, the financial ecosystem has grown significantly and now includes a large number of innovative FinTech start-ups and technology companies, working against and alongside established financial institutions.

FinTech is transforming how financial service providers interact with their customers.  Key enabling technologies such as cloud computing, social media, mobile, big data analytics, machine learning and artificial intelligence, and blockchain, are facilitating unprecedented levels of innovation in financial services.  FinTech products are now a feature of everyday life for Irish consumers.  It is commonplace to settle your dinner bill among friends using Revolut.  PayPal and Stripe are household names for payments processing.  Irish businesses now have alternative market places to source financing, such as, peer-to-peer lending platforms like Linked Finance.

A 2018 Enterprise Ireland and Ernst and Young report found that over 7,000 people work in the Irish FinTech sector.  This figure is expected to rise to 10,000 by the end of 2020, according to a 2019 A&L Goodbody report.  Despite the impressive growth, the availability of skilled talent is the most frequently cited challenge in the market.

Financial services professionals increasingly need to understand how digital technologies may impact their day-to-day job and to anticipate future opportunities and challenges that these digital technologies may generate.  “Data is the new oil” as the saying goes and so too are skills related to the technologies advancing the future of finance.  In response to this need, DCU Business School has developed a unique microcredential course, “FinTech – Financial Innovation”, delivered online through DCU’s new and exciting partnership with Future Learn, a leading online education platform.

Professor of Finance Mark Cummins is leading this programme at DCU along with his colleague Dr Pierangelo Rosati, Assistant Professor in Business Analytics.  Cummins says, “Digitalisation impacts those of us working in education too and we have entered this partnership to help meet the fast-growing demand for career-long, flexible learning designed to be accessible to busy professionals.  This demand is clear to us from our industry partners who we see grappling with the pace of change brought about by FinTech and who are seeking to upskill their teams with relevant, flexible programmes that quickly train staff with the most up-to-date content.  Our flexible, technology-enhanced programme ensures that professionals stay up to date and allows us help companies plug the skills gaps that are currently a challenge, as they aim to further the development of FinTech initiatives”.

Dr Rosati adds, “The programme focuses on the main themes of FinTech: crowdfunding and peer-to-peer lending; blockchain and cryptocurrencies; and banking and payments.  Participants will learn about innovation in the financial services industry through the adoption and application of new technologies.  They’ll be able to evaluate the competitive and collaborative opportunities that exist for established financial institutions and start-up FinTech firms”.

Participants in this programme will complete a microcredential course worth 5 ECTS credits and receive a postgraduate-level certificate award from the DCU Business School.  The microcredential includes formal online assessments and meets the standards set by the Common Microcredential Framework (CMF), part of the European Qualification Framework.  The advance of FinTech and Ireland’s ability to capitalise on this requires the attraction and development of talent.  The new employment landscape arising from digitalisation and the emergence of FinTech has been acknowledged at governmental level and identified by the Expert Group on Future Skills Needs in 2017.

Future Jobs Ireland 2019 notes the shifting demands of the labour market, the need to embrace technology and enhance the skills needed to grow our economy through flexible, lifelong learning programmes.  The recently-announced Human Capital Initiative (HCI) sets out to enhance skills, develop and attract talent to Ireland and support core competencies in digital technologies, with €300 million pledged to higher education programmes meeting priority skills needed for enterprise.

Dr Rosati adds, “It’s clear that in addition to the FinTech skills shortages identified by both industry and government the FinTech phenomenon poses a challenge to many existing jobs and a picture emerges of a financial services sector that needs to be prepared and informed in all elements of FinTech. Our new programme does just that.”  More information on this programme can be found at