Making better investment decisions with fintech? No sweat?


Making better investment decisions with fintech? No sweat?

As digital banking comes knocking at our door and coupled with the recent changing landscape in the financial services industry particularly in the fintech segment, we, as consumers are the major beneficiaries. More intense competition among the major players mean better services will be delivered at lower cost. “Fintech for inclusion” seems to be on everyone’s lips and countless articles have been written on advancing the benefits of fintech for the underbanked and underserved segments. Undeniably, a lot of us, though not all, to a certain extent, may have already benefited from the adoption of fintech from payment to data-driven investment in consultancy services. Studies demonstrate that seamless easy experience remains the utmost important factor for customers in their selection of a service provider. In other words, a service provider may face the risk of losing its customers at just the slightest inconveniences ensued from technical glitches in their platform.

The term “customer loyalty” and “customer satisfaction” may no longer apply in this era of digitalisation as customers may not be loyal although they are satisfied with a service provider. This explains why fintech providers are so obsessed in improving customer experience particularly in the area of digital on-boarding in their services. Palatable decent services is no longer good enough but services that intrigue and keep us delighted may retain us with their platform.

The users of platform for investing may be inclined to prioritise investment returns over convenience and they may stop utilising it if it fails to generate enough returns according to their risk profile or risk appetite.  Conversely, they may still utilise the platform, even if it is complicated, as long as the provider could deliver some magic figures for their investment returns.

So, with a myriad of fintech systems that help us to save, borrow, plan, trade, invest and automate our portfolios along with alternative investments along with emerging asset classes such as Decentralised Finance (DeFi) – cryptocurrencies and Non-Fungible Token (NFT), could we invest better with fintech?  Could we become more “prosperous” compared to our predecessors or to those who are reluctant to use the technology?

As humans are not always rational, digital assisted investment tools are here to help us invest with less emotions and make better fact-based decisions. For instance, thanks to the advancement of fintech applications with Artificial intelligence (AI), we could preserve the value of assets with the right risk-management techniques. Besides this, market sentiments for a particular asset or asset types could be gauged with the help of fintech applications in analyzing and interpreting human language by looking into their preferences, their opinions, what they say, likes or dislikes.

However, whether the tools can be harnessed for better investment decisions also depends on how smart we are in utilizing it.  If we are biting more than we could chew, we may be getting more anxious and miserable instead as we adopt more fintech platforms for investment solutions. For instance, with increased amount of available information together with fake news daily, we may have the “illusion of control” over our investment abilities when using platforms or “illusion of knowledge” over the capacity of fintech platforms for investing. These psychological biases could lead to excessive financial risk-taking that inadvertently results in less than optimal investment decisions when we underreact or overreact to information. Overreaction and under-reaction to information are due to our brain’s tendency to use shortcuts when processing large amount of information as detailed in the psychological literature.

Trying to avoid  “falling out of herd”, another type of bias commonly experienced by us,  we may also feel left out or under pressure if we are not doing what others are doing when making investment decisions. This leads to domino effects of “false consensus” and “momentum bias” when investing. Thus, no matter how sophisticated or data-driven the fintech platform is, its ability to discern real news from the fake or doctored news is also critical. The right investment action for better investment outcome could not be possibly extracted from big garbage. After all, fintech is also a tool that feeds on data.

We hate to be the greatest fool or be the last one to dump shares when things go haywire.  “Investing is most intelligent when it is most business like” and “Be fearful when others are greedy” are perhaps the famous quotes by Warren Buffet that we have to remember when investing. This is because we can only consistently beat the market and earn a return only if we are smarter than the market. Hence, emulating the trading strategies of others or adopt certain software that others are using as well could just mean that we are as smart or as silly as others and not necessarily smarter than others.

In short, too much of something is never a good thing; just like consuming too much vitamins or supplements may be bad for our health. What’s more, there is no perfect formula or system for investing in this world. As we produce tons of information daily from the moment we use electronic devices, we are essentially living in a big machine under digital surveillance daily. With increased competition, the major players may be heading for more partnerships and initiatives such as Open-Banking, to share and leverage our data in providing a more customised application and solution for us. However, getting more “digitally naked”, also means becoming more digitally exposed to financial scams. Thus, the best bet is still investing in ourself by acquiring knowledge and skills, while undertaking finance related and non-finance related risks that are brought about by fintech.  We should not forget that many market crashes like Black Monday in 1987 and the liquidity crunch in August 2007 are in part due to mechanical glitches.

External Education Advisor - Dr Audrey Lim
Dr. Audrey Lim Li Chin
Lecturer & a researcher at Multimedia University (MMU) Melaka | Certified Financial Planner (CFP)

Source: Smart Investor Jul/ Aug 2022