Robo Advisory – An opportunity which is here to stay

If you spoke about investing your money in stocks, bonds etc., you always had to read up to take calls or had to look for financial advisers to help you with the same. The first option was risky and time consuming as you had only limited knowledge and the second one was expensive.

In came the age of Robo-Advisors, i.e. online algorithms which understand your investment requirements and structure your portfolio accordingly. Robo-adviros were able to add value to the retail investing ecosystem in many ways.

Value created for Users

-     Cheaper & Less Prone to Errors: because of low human involvement in the process. Fees generally lie in between the 0.3-0.5% range, as compared to fees of financial advisors which tend to be over 1% depending on the portfolio size

-     User Control & Transparency: users are in control of their investments and can easily track their portfolio

-     User Experience: most platforms offer users a very ‘human-like’ interactive platform

Value created for the Platform

-     Scalable: scaling is easier with an automated platform. No (or very little) additional resources would be required when adding users

-     Incremental Improvements: an algorithm can be tried, tested and improved upon incrementally. Human advice has more subjectivity and is more difficult to do so

Now that we see that there is value created for users, we can work out some use cases for robo-advisory. Use cases can be based on end use or a potential user.

Use Cases based on End Use:

Event driven: users may want to save up for some future event such as a child’s wedding, a child’s education etc.

Future purchase driven: users may want to save money to buy something in the future like a house, assets like jewellery, assets to start a business and so on.

Personal goals driven: users may want to start saving and investing their money to grow personal wealth or save for retirement or saving for an emergency etc.

Use Cases based on Potential Customers:

Young people in a job: looking to grow personal savings, buying assets like house and jewellery

Parents: wanting to invest for their children’s education, marriage

Aging people: looking to plan their retirement

The User Acquisition Funnel for Crowd-Funding Platforms

A crowd-funding platform is a 2 sided platform requiring fund raisers and funders to function effectively. Hence users include people who are looking to raise funds and people who are looking to fund projects.

The User Acquisition Funnel comprises of 3 parts:

-          Inviting

-          Engaging

-          Acquiring

PHASE 1: INVITING

This is the first step of the funnel where the platform uses different advertising strategies to pull in traffic.

Goal for this Phase: To get ‘desired traffic’

Here desired refers to what you quantify as traffic. Some platforms may consider all traffic received desired traffic. Others may want users to fill in a small interest form (maybe just name, email id, whether investor or startup etc.) to qualify as a lead received.

Action for this Phase:

Platforms need to draw out various use cases and use different advertising media to reach out to them. 

For example, an equity crowd-funding may be interested in very early stage startups and may reach out to accountants who assist in company incorporation. To get investors, platforms can reach out to seed investors and HNIs through professional networks. Scraping data from other platforms is also a good strategy to collect data and leads.

Important Metrics:

Customer Acquisition Cost (CAC): As defined above, you start by defining what a conversion is. For example, a visitor to the platform may be a conversion or a visitor having filled out a form on the platform may be a conversion. Then CAC has to be worked out based on the following:

Advertising Strategy Wise: assess the marketing spend on different media like SEO, SEM, Social, Guest Blogging etc. and calculate the CAC figure for each separately

Target Market Wise: do the same for different users targeted. For instance in the case of rewards crowd-funding, calculate CAC for film producers, technology product creators etc. separately.

Handy Tools to Use: GoogleAnalytics, Kissmetrics

PHASE 2: ENGAGING

This phase is about engaging the conversions from Phase 1.

Goal for this Phase:  To engage conversion from above.

Action for this Phase:

The best way to engage visitors is to give good and relevant content to them.

The content should be structured based on the nature of the visitors. If they are informed about the product, i.e. they are better qualified leads, showing them projects live on the platform, success stories, customer testimonials, FAQs & terms and conditions of the platform (in a concise and visually appealing manner) should suffice.

For informed visitors, i.e. if leads are totally raw and not qualified, you should start off by defining what solution your platform is giving in very clear layman terms. An example for a potential investor can be ‘earn higher returns than stocks or bonds’ or for a fund-raiser can be ‘raise money in 24% of the time required to raise seed funding’. After this, you need to clearly explain the benefits of the platform with facts and statistics to back this. Thereafter, you show the other content, same as in the case of the informed visitors. Since these uninformed visitors generally tend to enter the platform without sharing any details. Their data should be captured so that push marketing techniques can be used to bring them back if they leave. Filling up forms to download ebooks, guides, webinars etc. is a common trick to do this.

Content is the best way to build trust and must highlight all the factors which affect trust building with the platform. Data and monetary security is a big factor and must be addressed clearly with no ambiguity for the user. Tools such as chat should be used to ensure a continuous interaction of the platform and the user.

Important Metrics:

User Behavior: User flow on the platform must be analysed to see how closely it resembles what the platform had thought it would be. Here different metrics of importance include

-          User flow (planned vs. actual)

-          Pages viewed per user

-          Time spent on different pages

-          Total time spent/invested by users on the platform

-          Drop off rate at different points of the user flow

Content Metrics: To assess the performance of the content offered to users, the following metrics can be used

-          Times accessed (as a percentage of total users reaching it)

-          Time spent on it (if it is an online read)

-          Shared through Social Media etc. (if sharing option exists)

Handy Tools to Use: Kissmetrics, Zendesk Chat

PHASE 3: ACQUIRING

Here the user makes the desired interaction with the website.

Goal for this Phase: Users makes the interaction desired.

For example in an equity crowd-funding platform, a startup starts a fund raising campaign or an investor makes a commitment to a project.

Action for this Phase:

This step is about customer onboarding. The platform needs to guide the user step by step as to what has to be done. Information and help must be provided and also tools like chat can prove useful to ensure successful onboarding. The platform should also integrate tools to get back any users who abandon the process half way. For example if a startup founder is filling up a new campaign form and leaves the process half way, a reminder email can be sent to bring back this user.

Important Metrics:

User Flow: Since the user acquisition funnel completes in this stage, the following metrics to be assessed based on different advertising strategies deployed and different potential users targeted

-          Final conversion rate for the whole funnel

-          Total time taken to convert for the whole funnel

-          Drop off points of users in the funnel

-          Pages viewed and time spent on them

-          Step at which final conversion happens. Users may skip certain parts and reach this final          step directly.

-          Usage of different tools used (like chat)

Complete vs. Partial Acquisition: Here user abandonment during the onboarding stage needs to be studied. High abandonment may imply a long or unclear form, confusing terms and conditions etc.

Handy Tools to Use: Kissmetrics, Zendesk Chat

Thin File Customers – Who are they?

A person having a thin credit file, i.e. insignificant or no credit history, is referred to as a thin file customer. Traditionally credit has been offered based on the credit history of a person. However, this has led to a large part of the population across the world not having access to credit. Credit scorers have now started using alternative criteria such as online social and professional networks, education, earning potential, mobile connections, utility connections etc. to bridge this gap and come up with a rating for thin file customers.

Some thin file customers can include the following:

Students – School and college students tend to have no previous credit history.

Young Graduates – People in their first job or looking for a job may not find it easy to get credit.

Immigrants – An immigrant to a country will not have a credit history in that country and may find it difficult getting a loan.

Older Generations – Credit was considered risky by the older generation and was avoided as much as possible. Hence a lot of the older people tend to have very thin credit files.

Housewives – In developing countries especially, housewives tend to have little credit history as most loans are taken by their fathers or husbands.

People in Small Cities &Rural Areas – People residing in smaller cities and rural areas get loans from local money lenders and friends & family in cash, which largely remains unaccounted for. Hence they are not able to build up their credit files.

Startups & SMEs – Even in the corporate sector, new companies tend to have lower credit histories and find it difficult to obtain loans from financial institutions. Additional security like a collateral is required in most cases.

The ‘6 Whats’ Problem Solving Framework

Having a framework for problem solving is important as often we wonder where and how to start. The '6 Whats' Framework is a a good one which helps you think through the problem and act accordingly.

What is the problem?

Stating the problem statement precisely is very important. Try to keep it as simple and straight forward as possible. Confused or unclear problem statements can lead to deviation from the core pain-point.

An example is “Conversion rate of free customers to paid customers is going down”

What does the problem mean?

Define all terms in the problem statement to ensure the problem is clearly defined and well understood. This is particularly important for the sake of all members of the team who are working on this problem.

In the above example, conversion rate needs to be defined very clearly. Also what going down means needs to be clearly defined.

What is the goal of a solution?

If you do not know the solution, you cannot work towards it. Again what is important is a clear definition of the solution. Clarity is key.

In the above example, a solution can be “Stopping the fall in the conversion rate and put it in an increasing trend”

What factors drive the solution?

This is where the analysis happens. You need to take the various terms of the problem statement and analyse them thoroughly. Different causal factors need to be identified and corrections need to be worked out. Analysis should be as microscopic and detailed to ensure that good causality and correlations are found. Once these factors are found, try to address them by offering different solutions.

In the above example, reasons for conversion rates need to be assessed. Data should be broken down and looked at in detail. The more detailed you get, the better would be the understanding of the problem.

What should you do now?

The implementation plan is the next step. Solutions worked out above need to be implemented with a plan in mind. Implementing incrementally is a good idea so that assessment can be made about the results of the same.

In the above example, if we analyze that making the free signup more detailed and changing the paid plans are 2 solutions, we should implement one first.

What are the developments?

The key is to implement and assess and then implement and then assess again. Implementing incrementally gives you the benefit of being able to assess each possible solution you implement. 

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