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Neo advice for private investors
Dr. Steib, it’s great to have the opportunity to talk to you today. You founded finCraft in 2018, and the app went live a few weeks ago. What exactly does finCraft do and what motivated you to found the company?
I actually worked as an analyst in investment banking for more than 20 years and always wondered why Germans are so hesitant about participating in the stock market. The stock market offers solutions to numerous current problems. That’s why everyone should be able to access it – not just men in dark suits. Studies demonstrate that the fear of taking the wrong decisions as well as insufficient knowledge have always been and still are the main obstacles for private investors. The developments since the major financial crisis have also severely damaged people’s trust in the advice provided by financial institutions. “Manage your financial future yourself” – that’s the order of the day. With our digital offer, we meet the need for advisory services. In this way, we open the door to the capital market for all users by enabling them to act as “self-managers”.
So in others words, your goal is to increase the financial literacy of the population. Which users are you especially targeting with your platform?
At finCraft, we believe that everyone is able to manage their own investment strategy – regardless of their age. After all, the topic is not as tricky as many experts would have us believe. All you need is some interest in the stock market, the right basic knowledge and an independent platform that provides beginners as well as experienced investors with everything they require in order to make informed investment decisions.
Which functions could stock market beginners expect to find if they registered on your platform and how would they benefit?
Right at the very beginning, during the onboarding process, we guide stock market newcomers through a structured investment process. We determine the investment goal and risk tolerance of our users and then match them with one of our archetypes. Based on this, we develop an appropriate investment strategy and suggest suitable securities from various asset classes. In this way, users already create their first diversified portfolio during the onboarding process. The most important thing to remember is that all this is done without any risk! The securities portfolios are selected under real conditions, but there is no “real money” or “real risk” involved yet. At this stage, we only work with a simulation. This means that we provide beginners with risk-free access to the stock market. They can simply try out the stock exchange, experiment and gain experience. Our users decide when they feel ready to convert their “virtual” investments into “real” ones and then also take real risks.
The platform provides investors not only with financial data on companies and securities, but also with stock market data in real time as well as current and relevant news. finCraft additionally offers comprehensive tools to analyze and evaluate this data and derive investment decisions independently. The know-how required for this is available straight away via video and other formats. Finally, monitoring functionalities support investors in observing and optimizing their portfolios over time.
I gather that it will soon be possible for investors to convert their sample portfolio on your platform directly into a “real” securities account. Will you then also offer the option to link accounts held with other brokers to finCraft?
Even now, it’s already possible to upload existing securities accounts to the finCraft platform in a very simple way via Excel import. So all functionalities can be applied to existing portfolios. Besides, we are working hard on our broker service. Our product is not complete until we combine “neo advice and neo brokerage” – because we aim to provide our users with an innovative one-stop solution. Developing and implementing an investment strategy takes longer than just a weekend. This is a medium- and long-term task. That’s why it is crucial for us to offer the best possible all-round service as a one-stop shop.
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Competition in the neobroker market
Over the last two years the interest in stocks and neo-brokers has rapidly increased. Have you also noticed the increased attention to financial markets and how has it influenced investors and the competition?
Of course, it was impossible to ignore the “meme stock” hype of the pandemic years. In this period, the prevailing opinion was that investors – stock market beginners as well as experienced investors – merely require a cool app with which they can buy and sell securities at good terms. Gambling without a plan: that’s all you need. In rising markets, many people succeeded with this approach. But after the dramatic price falls since the outbreak of the Ukraine war, many of these gamblers have been facing the dire consequences. Absolutely everyone has now learned that the stock market doesn’t work like that. You should only trade once you have a suitable plan – and not the other way around. Neo-brokers must therefore quickly think up some way to close this gap and not lose their users.
The hype you describe has nevertheless attracted several new players to the neo-broker market. In what sense does finCraft represent an alternative to other solutions?
Private investors who want to self-manage their financial future have to complete four steps. The first step involves acquiring knowledge, experimenting and gaining experience – if possible without risk, so you don’t get your fingers burnt straight away. In the second step, you should develop an individual investment plan, i.e. an investment strategy that fits your current situation and personal goals. In the third step, you implement your plan: this means that investors now buy securities and take “real risks”. The last step entails the ongoing monitoring and regular adjustment of a portfolio as required.
finCraft is the only platform that offers all four steps from one provider. Our app serves as an alternative model to the “wild west of investment”. Our offer is aimed at users who want to invest systematically, responsibly and with a long-term perspective. Because that’s the only way to succeed in the stock market. Our customers proceed at their own pace; we never pressurize them to make any investments. Experienced investors can skip the first steps and make full use of their knowledge by using our analysis tools and forecast data, as well as develop and test their own strategies. We have positioned ourselves perfectly for this – also in terms of technology. As a result, we are able to offer a spectrum of services that hasn’t existed before and, besides, to seamlessly integrate the finCraft Advice Suite as a white-label solution into the product range of credit institutions.
What’s next for finCraft?
With such a white-label solution, you could quickly help a large number of investors to adopt a more thoughtful investment behavior. In the future, you are also planning to set up a community area on your platform. What does this involve?
Especially newcomers to the stock market need guidance and creative inspiration. What could be more logical than exchanging ideas with like-minded people? The community area will allow users to communicate with other investors who have a similar profile and pursue similar investment goals. In addition, we aim to create a kind of marketplace for investment strategies where the performance and profile of the strategy models and portfolios of participating users are evaluated and made available to other users. Social trading is thus raised to a new level.
From what I understand, you are currently working on further innovative features, which are expected to go live in the near future. What other milestones do you and your team hope to achieve with finCraft in the next few years?
We are currently focusing on completing our broker service. We will be devoting our energies to this milestone in the coming months. Aside from that, we have a long list of further functionalities and features with which our service will be continuously developed and expanded about every three months: new analysis tools, more content, additional asset classes. We are also working on an international version of our app, because the need for advisory services, which I mentioned earlier, is not limited to Germany. However, the most exciting topic is that we will offer our users investment advice based on artificial intelligence. This development is already in full swing. But it will definitely take more than a few months before we can actually launch this service.
Especially as the founder of a company, one often has to overcome various obstacles. What challenges have you faced so far – and how did you deal with them?
Much has been said in the media about the obstacles that start-ups have to overcome in Germany. finCraft is no exception in this respect. With our topic, we are competing in an extremely regulated environment, which sometimes complicates things even more. Perseverance and the ability to endure a certain amount of suffering are essential. But if it was easy, everyone would do it.
The greatest challenge undoubtedly was and is in overcoming the consequences resulting from the unusual concentration of external problems. The coronavirus pandemic, the Ukraine war, inflation, the interest rate turnaround, fears of recession – all this has had a massive impact on the overall conditions and shaken up the stock markets. The high-tech darlings have crashed, the valuations of fintech companies have slumped, and the funding environment has been weakened considerably. We have transformed finCraft into a stock corporation (AG) to make us more flexible and more resilient in this situation. Above all, we have been able to staff our supervisory board with top-class experts. Consequently, we have gained extremely valuable know-how, enabling us to emerge from the current crisis stronger than before.
Thanks for the interview Dr. Steib. We wish you and fincraft all the best for the future.