Fintech Case 14

Eury Sohn, Junyoung Jung

Table of Contents

PART A: Overview PART C: Evaluation

5. Business Ecosystem
1. FinTech Industry
6. Porter’s Five Forces Model
2. Introduction to Wealthfront
7. SWOT Analysis

PART B: Analysis PART D: Recommendations

8. Problem Identification
3. Market Analysis
9. Recommendations
4. Business Analysis 10. Revision To Business Model
 PART A: Overview
1. Financial Advisory-Fintech Industry

2. Introduction to Wealthfront
INVESTMENT ADVISORY INDUSTRY
1890s

● Investment funds, hedge funds, mutual funds

● Advising Firms

Early 2000s Democratisation

● Relationship driven between customer - advisor of Investing
● Using already established plans
● Advisor’s ability
● Advising wealthy individuals

Now

● Risk management
● Need for greater technology
● Advising individuals
FINTECH
Analysis of large data set Advanced analytic tools Automated trading
-Data
Natural
-Velocity
High frequency trading
Language
-Speed Processing
Cost of collecting data
Less human labour
Cost of making insight

Automated advice Financial Record Keeping

Fully automated Distributed Ledger Technology

Adviser-assisted
Reduce Mediators
Barriers Of Entry
 OVERVIEW

● Founded in 2008
● CEO Andy Rachleff
● Robo-advisors
● Targeted towards millennials

“Empowers millennials to invest with quality automated investment management tools.”

OVERVIEW

Effortless Banking Investing savings Budgeting

 PART B: Analysis
3. Market Analysis

4. Business Analysis: Hype Cycle, Business Flow Chart, Business Model Canvas
3. Market Analysis - Global FinTech Market

EST 7 Trillion

s
r 6 Year
e
Ra te Ov
owth
350% Gr
3. Market Analysis - Top FinTech Trends
3. Market Analysis - Robo-advisor

● 200 Robo-advisors currently

deployed in United States

EFFICIENCY
3. Market Analysis - Robo-advisor

● Annual growth of 47.7%

● Approx 10% increase
per year

EFFICIENCY
3. Market Analysis - Robo-advisor

● Automation vs human
labour
● Four-fold difference
● Wealthfront : 0.25%
● Merrill Lynch: 1%

EFFICIENCY
3. Market Analysis - Demographic change

● Third of total
population as millennial
● 54% of Robo-Advisor
users are millennial
● Usage of mobile phones
● Secure in finances

EFFICIENCY
4. Business Analysis - Growth of Robo-advisors market
4. Business Analysis - Market Analysis

● Wealthfront AUM
(Asset Under Management)
$14 Billion
4. Business Analysis - Core Services
INVESTMENT PLANS
-HOME OWNERSHIP
-RETIREMENT
-TRAVEL
INVESTMENT -COLLEGE TUITION
AUTO ROBOT

WEALTHFRONT
BANK ACCOUNT

-CONNECT WITH PROVIDE

PAYMENT CREDIT
SERVICE BASED LOANS
BANKING LOANS
-CONNECT WITH
INVESTMENT
4. Business Analysis - Core Services: Investing
4. Business Analysis - Core Services: Banking
4. Business Analysis - Core Services: Loans
4. Business Analysis - Business Flow Chart
Software Developer (R&D)

2. Payment for Commission 1. Provision of Algorithm

Wealthfront

3. Investment funds 5. Purchase of assets

4. Automated financial
advice investment services
6. Guaranteed Flow
Private Investors Banks
 4. Business Analysis - Business Model Canvas
-Integration with financial
transaction platform (i.e. Venmo)
-Tech Providers
-Venture Capitalists
-High Cost of Customer Acquisition
-Initial Growth
-Platform development and product releases
-R&D
-Employees (Salaries and Benefits)
-Re-architecting the finance industry -To Make Financial Advisory -Individuals
-Democratic: Everyone deserves
-Development of time-tested Services Accessible to Everyone -Millennials
sophisticated financial advices
investment strategies -Parents
-Innovative Product
-Software development and -To Offer Personalized Automated -Retiree
-Robot-advisor
implementations Investment Accounts with
-Automation
-In-House research to make Significantly Lower Fees
-Simplicity
investments
-User-friendly on-boarding process
-Tax-loss harvesting -To Bring users in a unique
-Customer Service combination of finance services on
-Data Science a mobile app
-Offers Access to the Unique
Investment Strategy and
-Re-architecting the finance industry Comprehensive Automated
Financial Planning Service -Website
-Development of time-tested
-Mobile App
investment strategies
-Break the Cost Structure of the -Blog
-Software development and
implementations industry by streamlining and widely
-In-House research to make automating processes
investments
-Tax-loss harvesting -Simplify and Automate
-Customer Service Investments that would be
-Data Science prohibitively expensive through
existing channels
-Earn 0.25% on all assets managed and interests on deposits
-IT Infrastructure
-Legal and Administrative -Return of Investments
-Offices
-Economies of Scale -Loan Interest
(high investment in early years vs high return when scale)
4. Business Analysis - Business Model Canvas: Key Activities

-Development of AI Evaluate User’s Risk Management

To Create Portfolio Based on the Risk Level
-Data Science Algorithm
Types of Assets Ratio Differ Among Risk Level
-Application Development

-Investment Strategy Development

Provide a Solution To Massive Tax
-User Risk Weight Evaluation Model from Large Benefits

-Daily Tax-Loss Harvesting Sell ETFs Making Losses to Accumulate Net Loss
4. Business Analysis - Business Model Canvas: Key Activities

Provide Different Plans for Different Purposes

Education Plan Provides Tuition and Estimated

Cost Plan According to the Demanded College

Retirement Plan Makes Investments Calculating

Retirement Point, With Monthly Investment
Savings, And Goal of Sell Price
4. Business Analysis - Business Model Canvas: Value Proposition

USER CORPORATE

Democratization of Finance Advisory Incremental Technological Advancements

1. Mass Usage Through Mobile Application 1. Utilize ML, AI to Automate Investment Process

2. Easy Use, Low Barrier of Financial Entry 2. Collect Mass Data to Bring Higher Success Rate

3. Unique, Personalized Services to User’s Need 3. Lower Costs Through Optimization of Automation
4. Business Analysis - Business Model Canvas: Revenue Stream

Retirement Plan
Long Term Saving
Short Term Saving About 0.46%
 PART C: Evaluation
5. Business Ecosystem

6. Porter’s Five Forces Model

7. SWOT Analysis
5. Business Ecosystem

Substitute Traditional Investing Funds

Clientele
Solutions for Better Service
Personalized Service, Investment Portfolio

Partners Customers
(Finance, Tech)
Payment, Subscriptions, Data
Network Effect

Competition Vanguard Charles Schwab

6. Porter’s Five Forces Model: Customer

Clients

- Not concentrated
- Small amount of money

Low Bargaining Power Switch

- Contractual power - Low costs

6. Porter’s Five Forces Model: Supplier

Software Developers
- Create the automation software
- High Bargaining power
- Crucial infrastructure

Financial Data Supplier

IT Infrastructure
- Bloomberg &
- Low bargaining Reuter
power - High bargaining
- Commodity like power
products - Few
6. Porter’s Five Forces Model: Competitor

Substitutes
Betterment
- Passive funds Schwab
- Allows tracking
- Maximum transparency - No management fee
- Premium plan for real financial - Educational offerings
advisor - Possibility of uncommon assets
- Simplicity and ease of use

Vanguard

- Optimized for high net accounts

- Set goals for large goals
- Advisor reviews
 6. Porter’s Five Forces Model: Positioning Map
Automated
Wealthfront

Betterment

Schwab
Accessibility (Low) Vanguard Accessibility (High)

Traditional

Manual
6. Porter’s Five Forces Model: Substitutes

Large Firms (State Street, J.P. Morgan)
- Investment capabilities
- Possibility of stepping in
- More attrition
Wealthfront’s affordable,
accessible services with its
unique developed algorithms
ensures their advantage.
6. Porter’s Five Forces Model: Entrants

Barriers to entrance in Initial Cost Barriers to entrance in Clientele

- Technology development - Advertisement

- Infrastructure development - Attracting customers

Advantages in Scalability Advantages in Regulation

- Low cost - No limitation

- Minimal marginal cost - Scrutiny might increase
7. SWOT - Strength
1. First Mover Advantage 2. Full Automation

- High Technology Competence - Fast Transaction, Management

- Reliability Achieved Through History - Low Marginal Cost in Operating
- High Brand Value

3. Low Barrier of Entry 4. Competence Technology

- Low Minimum Fund Amount - Daily Tax Loss Harvesting

- Low Advisory Fee(0.25% Annual) - Automatic Rebalancing
- Passive Investment (Low Risk) - Personalized Risk Weight Evaluation
7. SWOT - Weakness
1. Less Diverse Products 2. Minimal Effect for Expansion

- No Fractional Share - Barely Movements of Developing New

- Limited Portfolio Variety Products
(ETF, US Stocks, Emerging Markets)

3. Zero Human Interface 4. No Large-Balance Discounts

- May not Fulfill demand of those who - Less Motivation for Large Balance
prefer Human Interface Users
- Inconvenience in Customer Service (Traditional Wall Street Customers)
7. SWOT - Opportunity
1. Increase in Interest of High Risk Investment
- Increased interest in High Risk
Investment
- May Incorporate Cryptocurrency
3. Increased Net Worth of Millennials
- Millennials Net Worth increasing than
Before
- Meet Preference, Retrieve High-Value
Customers
2. COVID-19 Investment Boom
- Increase of Investment of Individuals
- COVID-19 Restriction Increase
demand for Online Investment
4. Expansion to International Market
- Release Service to Global Markets
- Worldwide Investment Boom
7. SWOT - Threat
1. Competitors in Robot Advisory 2. Competitors in FinTech of non Advisory

- Vanguard (Late Entry) has highest - Robinhood

AUM - Commission Free, Stock, ETF
- Result in Lower Brand Power

3. Traditional Advisory Transition 4. Government Regulation

- May not Fulfill demand of those who - Biden Office Historic Tax Increase on
prefer Human Interface Investment Gains
- May lead to Drop in Revenue
 PART D: Recommendations
8. Problem Identification

9. Recommendations

10. Revision to Business Model

 8. Problem Identification - 1

“Empowers millennials to invest with quality automated investment management tools.”

Targets are millennials

- Portfolios for millennials

- What happens when they grow old?
- No consideration major life events after age of 40
8. Recommendations - 1
Goals to cater for complex needs
- Credit cards
- Mortgage
- Insurance

“Grow old together”

Retain customers

Create value relationships

8. Problem Identification -2

Competitor / Substitutes

- Cost of moving is low

- Many new entrants
- A substitute could appear
from big firms
9. Recommendation -2
Collaborations with
High Brand Power Design Brands
in Creating Products
- High Design Factor Debit & Credit Card
- Increase Banking Customers to
Incubate Potential Investment Customers
- Additional Benefit with Collaborated Brand

Based on Viral Marketing

Customer Segment: Millennials

-> Trend Sensitivity is High

8. Problem Identification -3
13 Million User in 2020

Low Diversity of Portfolio

- Less Diversity
- Not Attract New Customers
- High Risk High Return
Products are point of
Interest
9. Recommendation -3
Utilize Bot Trading in Cryptocurrency Market
- Allow Cryptocurrency Trade with Fund
- Trade Can Be made in Units of Second
- Meet Demand of High Risk High Return Users
- Evaluate Coin’s Risk Factor

Increase Demand or Inflow of Users

Expand Market into Cryptocurrency

Diversify Portfolio With High Risk Assets

 10. Revision to Business Model
-Integration with financial
transaction platform (i.e. Venmo)
-Tech Providers
-Venture Capitalists
+Collaboration with Various
Design, Trending Companies to
Make Design Cards and Benefits
-High Cost of Customer Acquisition
-Initial Growth
-Platform development and product releases
-R&D
-Employees (Salaries and Benefits)
+Mortgage, Credit Card, Insurance, Cryptocurrency Investment
-Re-architecting the finance industry -To Make Financial Advisory -Individuals
-Democratic: Everyone deserves
-Development of time-tested Services Accessible to Everyone -Millennials
sophisticated financial advices
investment strategies -Parents
-Innovative Product
-Software development and -To Offer Personalized Automated -Retiree
-Robot-advisor
implementations Investment Accounts with
-Automation
-In-House research to make Significantly Lower Fees
-Simplicity
investments
-User-friendly on-boarding process
-Tax-loss harvesting -To Bring users in a unique
-Customer Service combination of finance services on
-Data Science a mobile app
-Offers Access to the Unique
Investment Strategy and
-Re-architecting the finance industry Comprehensive Automated
Financial Planning Service -Website
-Development of time-tested
-Mobile App
investment strategies
-Break the Cost Structure of the -Blog
-Software development and
implementations industry by streamlining and widely
-In-House research to make automating processes
investments
-Tax-loss harvesting -Simplify and Automate
-Customer Service Investments that would be
-Data Science prohibitively expensive through
existing channels
-Earn 0.25% on all assets managed and interests on deposits
-IT Infrastructure
-Legal and Administrative -Return of Investments
-Offices
-Economies of Scale -Loan Interest
(high investment in early years vs high return when scale)
Appendix
“29 Andy Rachleff: Wealthfront.” A Dozen Lessons for Entrepreneurs, 2017, pp. 257–263., doi:10.7312/grif18482-032.

“Biden to Float Historic Tax Increase on Investment Gains for the Rich.” Reuters, Thomson Reuters, 22 Apr. 2021,

www.reuters.com/business/biden-propose-hike-capital-gains-taxes-pay-more-child-care-sources-2021-04-22/.

“Figure 2f from: Irimia R, Gottschling M (2016) Taxonomic Revision of Rochefortia Sw. (Ehretiaceae, Boraginales).

Biodiversity Data Journal 4: e7720. Https://Doi.org/10.3897/BDJ.4.e7720.” doi:10.3897/bdj.4.e7720.figure2f.

Grafton, K. Susan. FinTech 2019. Practising Law Institute, 2019.

“Your All-in-One Money App.” Wealthfront, www.wealthfront.com/.