This chapter sheds light on two advanced technologies related to consumer finance and retail investment. The chapter discusses the importance of mobile bank applications and robo financial advisors as well as loyalty and initial trust among young bank customers and young retail investors, respectively. It also highlights some public statistics from Sweden and Malaysia, two countries representing FinTech hubs, to illustrate the development of FinTech solutions. The chapter emphasises proposals for a continued direction for research.
TopIntroduction
The importance of individuals’ behaviour in financial markets increased after the global financial crisis of 2008 and has attracted still more attention during the turmoil of the COVID-19 pandemic. Policymakers, scholars, media networks, and other parties frequently discuss issues such as the consequences of financial setbacks and being cash strapped. In this regard, the consumer finance and retail investment arenas seem particularly germane, not least since the COVID-19 pandemic has increased the need for knowledge of the behaviour of individuals in these two arenas (European Banking Federation, 2020). In the consumer finance arena, individuals use financial services in their daily lives, for example, to send money (Muñoz-Leiva et al., 2017). Most of these bank customers tend to be passive and have a limited patience. They also prefer to compare the transaction fees charged by different financial service providers (Hauff, 2014; Nourallah, 2020). In the retail investment arena, individuals invest their money and search for returns that correspond to their risk tolerance. Most of these retail investors tend to consult financial advisors due to their deficient financial knowledge (Fecht et al., 2018). Retail investors also prefer trustworthy investment portfolio advice and they seek financial advisers with whom they can have good relationships.
Since the global financial crisis of 2008, several studies have focused on the role of consumer finance and retail investment in individuals’ lives (e.g., Thomas, 2010), noting that advanced technologies have left their fingerprints on the financial sector and opened the door for a new era of digital financial services, or financial technology (FinTech) (Goldstein et al., 2019). In the consumer finance arena, notable FinTech solutions include mobile bank applications (MBAs), while robo financial advisors (RFAs) are of particular interest in the retail investment arena. MBAs and RFAs are important for individual bank customers and investors. MBAs enable individuals to conduct daily financial transactions, such as paying bills, and allow them to plan their digital financial transactions (Liébana-Cabanillas et al., 2017). RFAs facilitate individuals’ financial investments and help them efficiently manage their portfolios (D’Acunto et al., 2019).
Consumer finance and retail investment are also important for financial institutions. For example, developing and implementing FinTech solutions that ensure “ease of use” and are “easy to understand” may help these institutions increase their long-term profitability (Lee & Shin, 2018). Moreover, society represents a third party that upholds consumer finance and retail investment through its regulation of financial institutions and markets, contributing to individuals’ financial capability and financial well-being (Xiao, 2016).
As indicated, individuals appreciate FinTech solutions that help them conduct their daily financial transactions quickly and conveniently, and MBAs represent well-used FinTech solutions adopted by many bank customers (Gomber et al., 2017; Leon, 2018). Because many MBAs operate in an intensely competitive environment, the customer relationship is considered a key to the success of MBAs (Liébana-Cabanillas et al., 2017). It can be argued that a main challenge related to MBAs in the consumer finance arena is loyalty. At the same time, RFAs are FinTech solutions relying on interactive and intelligent user assistance features, offering automated advisory services at a reasonable cost (Jung et al., 2019). RFAs are innovations in the introduction phase, representing a promising opportunity for retail investors (D’Acunto et al., 2019). Since RFAs are emerging FinTech solutions, building trust in RFAs seems essential to developing relationships with retail investors and is a key to the success of RFAs (Bhatia et al., 2020; Jung et al., 2018). It could be argued that a main challenge related to RFAs in the retail investment arena is initial trust.
This chapter highlights the case of a certain category of bank customers, i.e., young bank customers (YBCs), and a certain category of investors, i.e., young retail investors (YRIs). The young generation, i.e., individuals aged 18–29 years, seems to display little loyalty to financial institutions (Nicoletti, 2017) and there is opacity about building trust in RFAs (Fulk et al., 2018). Moreover, these individuals represent a promising market for MBAs and RFAs, because they will replace the older workforce in the near future.