Source: Finance Derivative
Karan Shanmugarajah, CEO, WealthKernel
Digital wealth and investment services are seeing significant traction, with novice investors buying and selling stock like never before. But whilst fintech robo advisors have democratised access to investment and wealth growth, these services must continue assessing and shaping their proposition to include diverse communities. With the wealth divide affecting ethnic minority communities the hardest, technology could be the force to help build more inclusive platforms for the creation of wealth.
Communities vary in wealth and how they invest
Investment providers must consider that Black, Asian and multi-ethnic people choose financial products differently from white consumers and their reasons behind this. Research from Backlight’s ‘Black Pound’ report, for example, has highlighted that individuals from such backgrounds opt to use multiple services and prioritise financial and pension planning. Individuals from minority ethnic backgrounds pay £268m into pensions each month on average and have a disposable income of £375m. Despite this, the People’s Pension report indicates that minority ethnic pensioners still remain 24% worse off than white pensioners, indicating a clear pension divide.
Broadly speaking, Black, Asian, and Minority Ethnic communities have significantly lower savings or assets than White British communities. For instance, the Runnymede Trust found that for every £1 of White British wealth, Black African and Bangladeshi households have around 10p. Given this context, it is clear that individuals from such backgrounds are far likelier to exercise caution when investing or using financial services.
With this in mind, if fintechs are to build better, more inclusive financial products, they must consider the variation in approaches to wealth and investments these individuals take.
Technology is disrupting the status quo
Wealth and investment services have historically catered to wealthier individuals with considerable funds to invest. And with varying degrees of wealth across BAME communities, breaking down every possible barrier to investment is crucial. This is where technology can play an important role in democratising access. For instance, API-driven infrastructure is helping to fix the ‘leaky pipes’ of legacy wealth infrastructure, and improve access for a wider set of audiences. This is enabling fintechs, and other investment firms to launch far more cost-effective services which are incidentally reducing investment fees that can be a barrier to many investors. Embracing technology is also helping businesses to have a laser focus on customer experience while catering to individual needs.
This is why we’ve seen fintechs leading the charge in tackling wealth and racial gaps in the wealth and investment space. WealthKernel is already working with some incredible fintechs disrupting this space who have built their offering around supporting underserved investors. For example, we recently partnered with Alpher, a female-first investment platform which is on a mission to tackle the £15bn gender investment gap in the UK. WealthKernel will provide Alpher with critical investing infrastructure via API, including custodian services and access to UK tax account wrappers such as GIAS and ISAs. Another fintech partner, Wealth8 is opening up access to wealth services for black and multi-ethnic communities. Other fintechs such as Wahed Invest are also focusing on customers’ cultural and religious needs with a Sharia-compliant ethical investing portfolio offering.
With fintechs already making good use of technology to remove barriers and open up access to wealth and investment services, we’re clearly heading in the right direction. For too long, BAME communities have been underserved by the wealth and investment sector, despite having an equally clear desire to invest and grow their wealth. As the Confederation of British industry has indicated, closing racial pay gaps could bring £24b a year to the economy, or 1.3% of UK GDP. If we can make similar changes in terms of access to investment for these individuals, there is the potential to unlock much more wealth. It’s for this reason, financial services must diversify their offerings and be sensitive to diverse communities’ cultural and religious requirements.
