What are the Benefits of Open Innovation Partnerships?

9 out of 10 Asset Managers consider fintech partnerships a strategic priority. Thanks to Open Innovation, the growing adoption of Artificial Intelligence (AI) to support the investment process brings together the technological know-how of high-tech companies with the experience of institutional investors, creating a new generation of investment solutions.

The importance of partnerships between financial institutions and fintechs

Higher competition, an increasingly demanding clientele and a high market complexity are just some of the challenges that the Asset and Wealth Management industry is facing today. In this context, the exponential growth of partnerships between financial institutions and Fintech companies marks the transition towards a more open business model, capable of rapidly bringing new products to the market and consolidating a competitive advantage.

 

The rising adoption of AI in the investment process has proved effective, as it has brought the latest generation adaptive solutions to the market, as well as increased the efficiency of the investment process. From supporting investment decisions to bringing completely new investment solutions, pooling the skills and experience of institutional players with the technological know-how of high-tech companies has become a strategic element to earn a competitive edge.

A recent survey by the strategic consulting firm Cornerstone Advisors shows that in the last three years, almost two-thirds of banks, insurance and Asset Management companies have entered into a strategic partnership with a fintech company to develop new products or to improve the efficiency of processes. From the same survey, it also emerges that about 9 out of 10 Asset Managers consider these collaborations (which often consist in the development or integration of AI) a strategic priority to gain ground and develop leading solutions for the future.

How important are Open Innovation partnerships for financial institutions?
Source: Cornerstone Advisors, The State of Bank-Fintech Partnerships

The value-add of Open Innovation

By analysing the data collected from the Accenture survey "The Future of Asset Management", which interviewed over 250 decision-makers from major Asset Management companies, a new picture emerges: over 60% of respondents agree that in the coming years investments in innovation and technology will be a top priority. This is followed by the expansion of product ranges, and the search for strategic partnerships with fintech companies to access specialised know-how,  such as the one related to the application of AI in the investment process. If we look at this phenomenon in the long term, it may therefore not be surprising that the trend towards the adoption of open models and partnerships with specialised actors comes from a broader movement that has been accumulating for years.

But what really drives financial institutions to partner with fintechs? The numbers presented in the latest report done by Ambrosetti help us comprehend this. Among the main reasons that push towards a more intimate integration amongst financial institutions and the fintech ecosystem are access to new technologies, shortening the time for product development, and access to specialised know-how.

What drives banks to collaborate with fintechs?
Source: Ambrosetti on the Bank of Italy data.

An example of the success of Open Innovation in the world of Asset and Wealth Management is how banks, insurance companies and management companies have responded to the demand for flexible and operationally efficient products thanks to collaborations with independent advisors. This has given rise to a new generation of investment solutions, including the first discretionary mandates, funds and certificates that use the AI’s inputs in their investment process.

A true growth driver

Under this perspective, the evolution of the Asset Management industry offers an excellent example of how Open Innovation partnerships between institutional investors and the high-tech ecosystem have been able to respond to the growing demand for new investment solutions supported by AI which, according to the latest survey by the CFA institute, meets the approval of over 80% of institutional investors.

A new generation of investment solutions are in fact the result of a new tailor-made advisory model within which the manager remains the protagonist of the definition of the universe, the constraints, and the execution of the investment strategy, benefiting from adaptive risk management for the construction of portfolios. By providing inputs based on a complete and unbiased market view, AI has thus made it possible to align the positioning from time to time with the evolution of the financial markets.

Do you see fintech partnerships as a growth driver for the next few years?
Source: Cornerstone Advisors, The State of Bank-Fintech Partnerships

A great ally for institutional investors

The wide adoption of AI-driven investment solutions by financial institutions is a sign that highlights the ability of Open Innovation to generate benefits both in terms of efficiency and growth of masses and customers. In other words, joining forces and accelerating innovation can bring value both to business profitability and to a better service offered to end customers.

In this sense, Open Innovation drives the transition from a product-centric model to a customer-centric one in which the time to bring new investment solutions to market has been significantly shortened. Not surprisingly, in the next two years it is expected that AI will attract the largest investments, growing by more than 50% compared to two years ago. A transition that underlines the maturity and adoption of this technology and confirms the normalisation of its adoption within the investment process.

Change in asset and wealth managers' investments over the next two years
Source: Deloitte ThoughtLab “Wealth & Asset Management 4.0”

These alliances has proved to be extremely valuable to integrate, for example, AI to support the tactical and strategic Asset Allocation process in an efficient way, and that especially in an extremely competitive and rapidly evolving context such as the current one, allows to accelerate business and corporate profitability thanks to a greater efficiency of processes, and significantly reducing development times to bring new products and services to market.

And if it is true that technological progress today makes it possible to adapt portfolio choices, Asset Allocation, and risk management to the gradual evolution of the markets, it is also true that this is a step forward from which we will not go back. An innovation that raises the stakes for Asset and Wealth Managers: what previously seemed impossible and filled with obstacles, is now within the reach of Open Innovation.

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