Acceptance of digital investment solutions: The case of robo advisory in Germany

Photo : Acceptance of digital investment solutions: The case of robo advisory in Germany

The financial services landscape is undergoing substantial change due to technological innovation and digitalization. The market entry of FinTechs (i.e. technology-based start-ups) intensifies competition in the financial industry: Banks struggle with innovation due to their legacy systems and the mindset of the organization where digitalization is not the top priority on the list. FinTechs on the contrary have no entrenched infrastructures, are closer to the customer and oftentimes are not facing similar regulatory burdens as banks. However, as FinTechs are new players in the financial services sector, they usually do not have a well-known brand and are not established yet.

Among the different services offered by FinTechs, robo advisory shows some of the largest growth rates while at the same time being substantially under-researched. Robo advisors combine algorithms and asset allocation models to provide investment management services to private investors thus giving them access to a multitude of different asset classes and usually automatically rebalance the portfolio by shifting funds between different asset classes.

Given substantial customer acquisition costs (estimates range somewhere between USD 300 and USD 1,000 per customer), understanding the main determinants of robo advisory acceptance and drivers of usage adoption seems paramount. However, investment decision making in general and robo advirory in particular are abstract services. In order to make robo advisory more tangible, we built replica of two digital asset management platforms having the same appearance and offering the same information as the original robo advisors but without brand names and logos to ensure anonymity. Participants in our sample had the chance to navigate the robo advisors replica and familiarize themselves with the functionalities before answering questions on usage intentions and drivers thereof.

The results show that perceived usefulness and perceived privacy are the most important drivers of robo advisory adoption. Accordingly, these items should be clearly emphasized when trying to attract customers to digital investment management platforms. Moreover, females have substantially lower usage intentions. Thus, special initiatives targeted at women are needed if the aim is to tap into this underserved customer group. Last but not least, our findings provide evidence that participants using online banking or having experience with investment funds have higher usage intentions. For traditional banks setting up their own robo advisor, this provides an opportunity to transfer these customers to their digital asset management platforms.

The full paper is available here.

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    Volker Seiler Volker Seiler is associate professor in finance. He joined EM Normandie Business School in 2020. He has a PhD in finance from the Univeristy of WHU, Otto Beisheim School of Management awarded in 2011. His thesis in on the customer satisfaction in private banking. His research interests lie in the intersection of finance and economics with a recent focus on the empirical analysis of commodity markets (especially rare earth elements)

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