Flush with $50 million in new funding, the fintech SigFig wants to deepen its relationship with banks and wealth management firms by providing more than just automated advice technology.
The top priority for financial services firms is to improve the customer’s digital-user experience as tech giants like Amazon knock on their door, SigFig CEO Mike Sha said.
Sha said industry-backed startups like his firm — which powers the automated advice platforms of UBS, Wells Fargo and Citizens Bank — are more nimble and thus better suited to address this demand than technology providers that banks have relied on.
“Existing technology legacy providers, companies like Fiserv and FIS, focused historically on core system technologies. That made sense when technology was being used to modernize core systems,” Sha said. “Where banks want to invest now is in actual client service, in client experience, the actual product.”
It is an opportunity fueled by the reality that most financial institutions are struggling to adapt for a digital era of banking, Sha said.
"We live in an age where products and services are changing pace faster than ever in history," he said. “The entire industry is struggling with how to modernize their legacy piece of software, which usually is a thousand pieces of software stitched together with Scotch tape and glue.”
In response, Melissa Cullen, who heads up product strategy for the wealth and retirement business at FIS, acknowledged digital advice is becoming a core part of the customer experience.
But big banks and wealth management firms do not want to buy such technology piecemeal, Cullen said, noting that the firm has its own solution that was built in partnership with a SigFig competitor, Trizic.
“They want assurance that it is going to work with their core systems, is able to support the underlying transactions, and operationally move through their systems,” Cullen said. “As the digital-advice space matures, additional value will be put on creating a seamless client experience. Integration with core systems data sharing will be a significant benefit that drives client behavior.”
Fiserv also stressed it is adapting for an increasingly digital world and changing preferences for financial services.
"In order to meet this preference, banks are looking for offerings that span the full customer wealth management lifecycle," said Cheryl Nash, president of Fiserv's investment services. "We’re collaborating with our clients to develop and deliver new tools for planning, proposals, new account opening, account onboarding and account management. And we’ve accelerated our responsiveness by partnering with best-of-breed digital advice solution providers like Marstone.”
There is evidence that banks are now investing more on improving the digital-user experience than on core systems, said Sam Kilmer, senior director at Cornerstone Advisors. According to his firm’s research, banks are buying and replacing online customer onboarding systems at three times the rate of back office transactional systems like core and payments.
“The ship sailed long ago on transactions being digital and banks needing capacity to make that happen — it’s now the primary way customers interact,” Kilmer said. “But the interactive side — getting help, opening accounts, getting advice — for many banks still is either a big challenge or a big greenfield, depending on how you look at it. They haven’t figured it out yet.”
It is another reason investors (which include banks and private-equity investors) want to fund firms serving enterprise needs in robo advice, said Rob Foregger, co-founder of NextCapital, a SigFig competitor that recently raised $30 million.
“Digital advice is projected to be a $6.5 trillion global market over the coming decade," Foregger said. "While there is a great opportunity for a handful of direct-to-consumer digital advice players, the largest share of market will be won by large trusted brands with large installed client bases. SigFig’s round is a nod to the forward progression of the enterprise digital-advice business model and massive market need.”
Where startups like SigFig differ from core technology providers, Kilmer noted, is orientation. Core providers started with the bank and built out systems that supported a bank’s infrastructure and compliance needs toward customers, he said, whereas startups begin with a customer need and build back toward banks and core providers to provide fulfillment.
Core providers, which generally have been acquiring their digital capabilities, will have to demonstrate they can be as nimble as startups, Kilmer said.
Forcing this change is a shift from investment advice to advice touching all aspects of a client’s finances, Sha said, from savings accounts to mortgages. Advice, he said, is becoming the primary differentiator in a holistic financial model where banking and other financial services overlap.
“That broader set of advice needs are definitely what consumers need help with,” he said.
That is why SigFig is helping firms figure out how to expand digitally to serve small clients traditionally ignored by wealth management and build digital services that will appeal to wealthy clients as well, Sha said.
“Even at higher-net-worth service, consumers want technology to be more part of the model, and that’s exactly why we have partnerships with UBS and Wells Fargo. This accounts for a portion of where SigFig’s growth has come from — modernizing traditional wealth advice service.”
Unlike robo-advice startups that have kept a focus on retail, by shifting to enterprise customers, SigFig has been able to invest in developing its offerings and growth, Sha said.
SigFig was among an early crop of digital-advice firms that shifted to focus solely on enterprise as wealth managers and banks sought to add robo advice to their offerings. One of its rivals, FutureAdvisor, was acquired by BlackRock in 2015. FutureAdvisor has cultivated its own set of bank clients, including U.S. Bank.
“Our partners bring customer base and brand,” Sha said. "We spend nothing on customer acquisition. The money we raise goes directly into hiring talented product managers, engineers and designers.”
In addition to building out the company and developing new technologies for its bank and wealth management customers, Sha said. the new funding will allow his firm to take on new customers and consider overseas expansion.
“The number of firms wanting to work with us far exceeds our capacity,” Sha said. “Today our partners give us access to 25% of U.S. households. That 75% of households is still an opportunity for us.”