New savings solutions in the digital age
It has now been almost two decades since online banks first appeared in France. A real revolution in a world where habits are changing smoothly, online banks have been slow to establish themselves as a credible alternative to traditional banks with a solid branch network. The finance sector is, after health, the one where individuals attach the most importance to the relationship of trust with their interlocutor. It took the arrival of a generation of digital native, comfortable with the idea of a 100% online banking service, so that the craze takes off. Online banks now have several million customers in France.
The digital revolution is not just about banking services. The entire savings management ecosystem is evolving. In recent years, many players have appeared by positioning themselves in services for individual savers: PEA/securities account, life insurance, management piloted, tracking savings, etc. Some companies offer a simple digitalization of already existing services, while other more ambitious companies (we then speak of fintech) go further in innovation by completely reformulating the nature of the services offered. The digitization of savings solutions comes with a triple promise:
- reduced costs,
- more efficient services,
- simplified subscription and day-to-day management.
This bet is largely taken by the new players in savings. We offer you here an overview of new savings solutions and services in the digital age.
Equity investors: the precursors of new uses
Equity investors are among the early adopters new uses enabled by digital technology. Whether it is for graphical analysis of stock prices or fundamental analysis of stocks, investors are hungry for data and also want to be able to place orders in real time.
Thus, as early as the 90s, certain pioneering investment funds were already making data mining long before this field of activity was popularized as it is today. We can cite in particular the case of the DE Shaw & Co investment fund, founded by a doctor in computer science, this fund shows much better performance than traditional funds. To achieve such a result, the investment fund does not hesitate to recruit talents in the hard sciences, who develop mathematical models based on micro and macroeconomic data and aiming to identify the most important financial trade-offs. interesting. This so-called strategy quantitative relies heavily on the development of IT. Among the other funds also rely on a so-called quantitative strategy to allocate capital, we can cite Renaissance Technologies, this fund was founded by a mathematician and also displays exceptional performance.
IT very quickly conquered the trading rooms, but also individual investors. Savers have been able to place purchase orders from the internet for about twenty years now. Online brokers quickly emerged and were able to seduce stock marketers with more comprehensive and competitive services than those offered by traditional banks.
Thus, after reading a PEA (or securities account) comparison, many savers choose to transfer their PEA from their traditional bank to an online bank (Boursorama, Fortuneo, Hello bank !, etc.), or switch directly from their bank to an online specialist broker (DEGIRO, Bourse Direct, Saxo, etc.). This change is generally motivated by the quest for lower ordering fees, and the abolition of custody fees (fees still applied by some banks). These fees can range from single to double (or even more), in particular for orders placed on foreign markets. However, more and more investors are interested in foreign markets.
Many investors favor technology stocks, which are mainly located in the United States. The performance of the CAC 40 pales in comparison to those of the NASDAQ (the benchmark index for tracking US technology stocks). New brokers are offering a 100% smartphone experience, such as Trade Republic, a broker with more than one million clients in Germany, its country of launch. The younger generations often open their account directly with an online broker.
The most seasoned investors no longer hesitate to turn to brokers outside of Europe. We can for example quote Interactive Brokers, this American broker seduces demanding French investors by offering a very wide range of services. In particular with the possibility of lending his securities (the shareholder is remunerated for this and thus improves the performance of his savings) or access to sharp derivatives, the possibility of holding cash in USD currency, etc.
Equity investors are not the only ones leading the way in terms of digitizing savings and investment solutions. “Father of families” investors also have access to 100% online savings products, such as life insurance.
Life insurance is one of the pillars of savings in France, outstandings invested in life insurance represent around € 1800 billion, which is spread over the nearly 50 million contracts opened in France. When a saver has filled in his booklets (booklet A and Sustainable Development and Solidarity), life insurance is generally the default placement offered by bank advisers. In some cases, life insurance even replaces passbooks due to two significant advantages:
- life insurance allows you to invest in a risk-free investment that pays more than savings accounts: euro funds,
- life insurance offers more advantageous inheritance tax.
These two advantages alone explain a good part of the popularity of life insurance. Euro funds are investment vehicles with guaranteed capital, they are managed by insurers. In the event of default by the insurer (a very rare event), savers also benefit from a guarantee of up to € 70. The French prefer the security of capital, euro funds therefore perfectly meet this expectation. Also, euro funds show performances of between 1 and 2%, which is much higher than the current rates for savings accounts.
Gone are the days when opening a life insurance policy required going to your bank branch or to your wealth management advisor for the wealthy. Now we count many specialized online brokers. Online subscription, 100% online management. The key: reduced costs, access to more efficient investment vehicles, and more comprehensive services than those offered by traditional banks. Let's see this in more detail.
The costs associated with holding life insurance range from simple to double depending on the contracts. Online brokers offer life insurance with the most competitive fees, far ahead of life insurance distributed by traditional banks. The three main costs that we encounter are:
- payment fees,
- management fees,
- and arbitration costs.
As for online brokers, there are contracts with no payment fees and no arbitration fees! An argument that hits the mark at a time when some banks charge nearly 3% of fees on payment (or even more, even if these fees are generally negotiable).
Regarding management fees, they range from 0,50% for the best online life insurance policies to almost 1% for the less competitive bank branch contracts. It doesn't sound like much, but an annual fee differential of 0,50% represents almost 5% of overall fees on assets after 10 years.
Arbitration fees are levied by some banks each time the saver transfers money from one medium to another. Here again, savers are more likely to favor contracts without arbitrage fees such as those offered by online brokers when they plan to diversify their investments and periodically adjust this allocation.
If these contracts offer such interesting services, it is because of the digitization of services. Brokers offer a 100% online customer experience, whether it is for the subscription or the day-to-day management of the contract.
The high costs observed on life insurance marketed by traditional banks are not accompanied by premium services. On the contrary, online brokers offer the most richly endowed contracts in investment support and management options.
The digitization of services is accompanied by a wider choice of investment vehicles
The life insurances marketed today are almost all “multi-support” life insurances. The subscriber can allocate his capital to a euro fund and / or place it on other more profitable supports such as equity investment funds and even real estate supports. These are “unit-linked media”. Savers who invest for the long term are more and more likely to favor unit-linked funds to invest their capital. Some insurers also require savers to allocate part of the payments to unit-linked support.
Among the life insurance policies marketed by online brokers, there are contracts with a huge choice of unit-linked media. Thus, it is not uncommon to see life insurance online giving access to several hundred supports ! The digitization of services is accompanied by a wider choice of investment vehicles. Better still, these contracts offer an open architecture, that is to say that the contract gives access to funds managed by third-party management companies independent of the company that markets the contract. Online life insurance therefore offers a much more interesting choice and quality of media than life insurance from traditional banks. With the latter, the saver is restricted to a few dozen “in-house” supports that are unattractive in terms of costs and performance.
The corollary of this plethora of services available on online contracts is that savers get lost and do not know how to invest their savings. Never mind ! They can count on management services piloted, the latter are also moving into the digital age.
The principle of management pilomanagement (or delegated management) is relatively old. Traditional banks have always offered this service. As part of a management pilo(we also speak of management under mandate), the saver entrusts a mandate to a manager to manage the assets he holds, generally on a life insurance or a retirement savings plan, more rarely on a savings plan in shares or a securities account.
Online brokers offer management pilosimilar to those of traditional banks, but with reduced operating costs. The digital revolution is to be found on the fintech side. New companies are dusting off management pilotee. These include Yomoni, Nalo, Wesave, etc. These new players combine competitive rates and a full range of services, and also innovate in the allocation strategy.
FinTechs also stand out in terms of the degree of personalization of the allocation. While traditional players generally only offer 3 or 4 profiles (we generally find them under the names “secure, balanced and dynamic”), fintechs offer up to a hundred allocation profiles! What more finely modulate the allowance of the saver. To define the allocation profile adapted to the saver, these fintechs rely on digital decision-making tools called robo-advisors. These new tools come to us from the United States.
The other disruptive point of these fintech concerns the investment vehicles chosen to allocate the capital. Here again, fintechs are based on an invention that comes to us from across the Atlantic: index funds.
Investment funds: investors are turning more and more to index management
The rise of index funds is one of the big trends of recent years. The principle of index funds is simple: the fund simply reproduces the performance of a stock market index. Investors can thus subscribe to funds that reproduce the performance of the CAC 40 or the S&P 500 (the benchmark index in the United States). In order to optimize the diversification of their portfolio, investors opt for “world” allocations. Thus, index funds that track the performance of the MSCI World Index are very popular.
There are index funds continuously quoted on stock exchanges: ETFs (Exchange-Traded Funds). ETFs have grown in popularity significantly due to their very low management fees and excellent performance. The idea of passively replicating an index dates back to the mid-70s, it was around this time that John C. Bogle, founder of the Vanguard Group and considered the father of index funds, launched a fund replicating a basket of 500. actions. Corn it is only recently, with the extreme digitalization of financial services, that the popularity of ETFs has taken off.
Index management is opposed to active management. Actively managed funds (traditional funds) seek to beat the markets. In practice, they struggle to achieve this goal. This is due to significant management fees, of the order of 2% per year, implied by the remuneration of the teams of financial analysts responsible for investing capital on behalf of clients. Conversely, the management fees of index funds are less than 0,50%.
French management companies such as Amundi and Lyxor have positioned themselves in the index management niche and offer dozens of ETFs. Some of these funds are eligible for the equity savings plan (PEA). They are also found in the list of unit-linked supports of the best online life insurance policies. Fintechs offering management piloThese companies articulate their asset allocation strategy around ETFs. They thus manage to drastically reduce management fees, which directly benefits the performance net of fees delivered to savers.
The rise of ETFs is made possible with the computerization of the major stock exchanges. Nowadays, index management represents a significant fraction of assets under management.
The digitization of financial services now makes it possible to centralize the overview of these different investments. Data exchange protocols between establishments have been developed in recent years. This technology allows the emergence of new services. One obvious service is the account aggregator. We can notably mention the startup Finary, which offers an online interface to centralize its accounts and have a complete view of its assets.
This overview is accompanied by functions allowing a better appreciation of the state of its heritage. In particular via performance indicators, a statement of management fees, a consolidated view of the allocation on all assets, etc. From a technical point of view, these aggregators only have read-only access to third-party accounts, the data exchange protocol has been developed with an emphasis on IT security (DSP2 directive). The applications of this technology are still in their infancy but pave the way for better management of savings.