Saturday, March 2, 2019

Students in Marquette’s FinTech Topics Class Taught by Dr. David Krause Analyzed Various Robo-Investing/Advising Products and Found Interesting Results

FinTech students agree with the WSJ’s article “Banks Are Paying Peanuts on Deposits. Robo Advisers Are Offering Higher Rates”
Better deals for consumers will likely hit traditional banks and brokerages, where cash deposits have long generated a significant chunk of revenue

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Marquette's Applied Investment Management
Research Room
The students in Dr. Krause’s FinTech Topics class each analyzed four robo-advisors and digital banks to evaluate the strengths and weaknesses of the offerings. Similar to The Wall Street Journal article by  Lisa Beilfuss, they found large differences in what consumers are being paid on their cash (money market) accounts.

For instance, two pure robo-investment firms offer much higher yields.  Wealthfront’s cash-management account, which is basically an investment brokerage account that pays a return on idle cash, is presently offering a 2.24% annual interest rate, and Betterment LLC’s account  offers 2.23% after fees. That compares with a national average of 0.10% U.S. banks are paying savers, according to Bankrate.com

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David Krause teaches a FinTech Topics
course at Marquette
Krause concluded based on his student’s research, “I saw it before when money market funds were introduced in the early 1980s, better yields on cash balances will likely hit the traditional banks and brokerages hard – and this is an area where consumers’ cash deposits have long generated a significant chunk of revenue because they loan the funds out at a much higher rate.”

He continued, “I believe that the legacy, retail banking industry is going to undergo a major change and the high-tech, sophisticated FinTechs are ready to take considerable market share from them. Today’s digital natives, millennials, and Gen Z consumers might drop their traditional bank for a digital bank or robo-advisor.”

Lisa Beilfuss in the WSJ wrote that “Automated financial advisers are expanding into the cash-management market with high rates, the latest move by these so-called robo advisers to capture clients from traditional banks and brokerages.”

Krause indicated that he plans to produce a report of the students’ findings.