BY NIKOLA GROZDANOVIC
Not too long ago, when an individual wanted to save or invest money, they were limited to a handful of options. In the early days of our ancestors, farming and land underpinned wealth and a bank account was considered a luxury. Even after industrialization took hold, we were still fairly limited; with most individuals opting to invest in a bank account, property or even in a box under the bed.
Information around investing was scant and financial education required a huge commitment of time and resources. If we wanted financial advice we had to rely on advisors (if we could afford them), community members, or go it alone.
We can now participate in anything from forex trading to buying crypto currencies with our mobile devices or a laptop.
Technology has allowed people to get completely involved with the process of investing, from choosing a portfolio of shares to becoming a forex trader. However, we are still a long way from a world where everyone can participate in the formal financial arena.
According to Worldbank.org, two billion people worldwide do not have a bank account or access to a financial institution via a mobile phone, or any other device. However, between 2011 and 2014, 700 million adults became account holders, and the unbanked population fell by 20%, down from 2.5 billion.
The growth of mobile technology, and the fact that mobile phones are becoming cheaper, has helped literally billions to have access to products and services that they were previously excluded from.
Technology has influenced almost every aspect of our lives, but perhaps the most useful of the developments are in the financial space. We not only have access to many more investment options, we even have robots that can make decisions for us, fondly known as Robo- Advisors.
They are not actually robots but clever computer programmes that ask you about your life, income and investment attitudes – and based on your answers, they will generate a report that suggests suitable investment options for you.
Lukman Otunuga, market analyst at FXTM says “When trading the foreign exchange market, investors can use expert advisor which are programs that allow automation of the analysis and trading. Forex brokers have recognised that novice traders have the desire to trade, but lack experience.”
An expert advisor (EA) is essentially an automated trading algorithm that allows traders to code the parameters of their trading strategies.
These highly complex but simple-to-use tools assist traders to refine their trading strategies and gain a greater potential advantage over the markets.
Traders that have opted to use EAs have honed their skills over time and eventually become strategy managers, allowing suitable traders alike to copy their trades for a fee.
Copy trading, as it is called, is a form of social investing. It allows traders to build a network of followers in which they would share market projections to create trading strategies. Followers can duplicate trades made, while onlookers could receive first-hand insights into how trading strategies are formed.
This creates a hybrid scenario for an investor – using both technology and another human to help them invest. There has been a long-standing debate about whether humans or machines are better suited for making investment decisions or delivering a service.
However, the key argument here is not who delivers a better service but rather, how the service deals with human behaviour. Human behaviour is random, but by employing big data analytics and algorithms we can spot trends and discard the noise that can undermine decisions.
The real power of technology will come when it is seen not only as a mechanism for enabling access to services, but when it facilitates a positive user experience and drives meaningful engagement with the vendor. In other words, the technology enables a more social and human experience.
Nigeria has a rich history of social investing. Collective investment schemes known as eSUSU are known to almost all individuals who want to save for a goal. Over 70% of people in emerging markets do not have a formal bank account, so they have devised their own ways to save money.
The most popular is the Rotating Savings and Credit Associations (ROSCAs). They function by taking monthly deposits from each member of a group and then payout the entire amount to one member of the group. The recipient of the collective sum is based on a predetermined rotation, ensuring each participant will eventually receive a payout.
It is estimated that over 40 million people in Nigeria participate in some form of social investing. Of course, when there are humans involved with money there is always a margin for error; blind trust that the people handling your money will play by the rules is a default – a condition of participation. Banks have seen the enormous potential of getting these informal savings plans onto a technology platform and have invested significant capital to achieve this.
While technology has changed the face of investing and allowed more people to engage in the formal financial sector, we are still a long way from full inclusion. Accessibility and knowledge still remain a major obstacle for the bulk of emerging market individuals.
Institutions fully recognise that optimising the technology experience is key to seamless service delivery and the much-desired total customer experience. This explains the huge investment in IT infrastructure by financial institutions in recent times.
Otunuga says “all financial service industries have raised their games in the technology space. FXTM has spent a lot of resources on their mobile trading apps and we invest heavily in keeping up to date with innovations in the industry. Reliable, fast and engaging technology is what keeps our clients coming back and we are acutely aware of the role it plays in our success as a broker”.
We will continue to see rapid growth in financial technology, but it would and should not come at the expense of the individual. In fact, the smart money will be on solutions that seamlessly embrace and involve the user for the benefit of both parties.
It is an exciting time for both the consumer and the service provider, and it would seem that the only barriers we now face, exist within the limits of our creativity.
Written by Nikola Grozdanovic, senior writer for FXTM