The growing tendency of the robo-advisor software segment cannot be ignored for the rest of 2021, explains Konstantin Rabin of Bitsgap blog.
Over the last couple of years mainly starting from 2017, ever since cryptocurrencies peaked at the (then) all-time high, interest in participating in the financial markets has also risen. To meet this increased demand, companies have yet again approached automation as their saving grace.
Even though robo advisors existed and operated well before the 2017 peak, a very clear and steady growth can be seen in the number of assets under management since then. For example, we can clearly see a growth of around 40% in 2017-2018, 55% in 2018-2019 with a slight hiccup in 2019-2020 projections at 25%.
However, due to the Covid-19 pandemic, many people quickly found themselves at a crossroads. Either follow a jobless road after massive layoffs in the world’s leading economies, or risk it all with their life savings and try to make it big in the market, or at least profit enough to make ends meet. Because of such an approach to trading (and a coincidental hike in the crypto market), a growth of around 40% in held assets can be seen in the 2020-2021 financial year.
What Does the Road Ahead Look Like?
According to Precision Reports, the robo-advisory market is going to continue growing at a steady but sustainable pace. The projected growth in the 2021-2022 financial year has already dwindled to around 23%, but it is a much larger growth compared to the 25% in 2019-2020.
What this means is that the maintenance of a steady pace doesn’t mean stagnation in popularity or interest, but on the contrary, an increase in participation and dedication from both the consumers and the providers.
Based on the aforementioned organization’s research, the global held capital in the robo-advisory market should reach $41.07 billion in 2027, which means that steady growth is likely to remain
More People = Less Individual Capital
The average account size of users, compared to the overall capital in the segment is shrinking. Yes, it may sound a bit surprising, but it’s quite natural. While the market was dominated by a few whales before, now smaller and smaller accounts are being created on a daily basis, bringing the average down by a significant margin.
For example, compared to 2017, when the overall capital under management was just under $2 billion the average account size was around $7,000. In today’s case, it’s around $4.51-6 billion in managed capital and almost $5,000 per account. This is predicted to grow, however, expected to reach around $6,000 per account in 2025, but still a slump from 2017.
What About 2021?
According to statistics from Allied Market Research, the global market cap of the robo-advisory market in 2019 was around $4.51 billion. This was heavily concentrated in markets such as the United States and the United Kingdom.
But what about 2021? Well, we don’t have an accurate number at the moment because the year isn’t really over yet. We will have those numbers somewhere in January 2022, but what we can do is guess at this point. If the predicted CAGR of 31.8% for the robo-advisory market is correct, then we can assume that the market cap for 2021 is $7.8 billion, for reference, that’s pretty much the same as the market cap of the Singapore Exchange.
What’s Driving Such Growth?
There are a number of reasons why robo advisors are taking the market by storm. The first being their undeniable value to beginners, who don’t really want to get into learning the details of the market, nor understanding the very basics of trends, price changes etc.
The small fee, which robo advisors require to use their services is in most cases more than acceptable to these types of traders, thus making the market much more enticing to them. All of this combined with the new flow of rookie traders each year, and we get a pretty natural picture of why robo advisors are absolutely killing it in the numbers department and why they’re soon to be a pretty big sub-industry in finance.
Extensive Growth in Low-Income Countries
The popularity of robo advisors is much clearer in lower-income countries, especially those that have seen a little bit of a boost in personal income for their citizens. A perfect example of this is Malaysia, where GDP per capita has reached around $11,500 and is projected to reach $15,000 in 2025.
Malaysia also became a perfect destination for robo advisors in 2017 when the Securities Commission Malaysia launched its digital investment management system. This then enabled the integration of three new robo advisors as legal entities in the country, opening up new opportunities for the local residents.
But, by all means, the same kind of tendency can be seen in other countries like Nigeria, Kenya, South Africa, etc. Mostly low-income countries with unlimited possibilities to grow.
So - What’s What?
The bottom line is that the robo-advisory segment is something to pay a lot of attention to, especially in the coming years. It is expected to have a market seven times larger than it is today by 2027, which is by no means a small feat.
With such large-scale growth in terms of market capitalization, it’s guaranteed that additional software updates are on their way too, potentially increasing the potential for even higher gains for the market.
Learn more about Konstantin Rabin at Bitsgap blog