Investecs fintech failure is a candid lesson for other incumbent financial institutions

This is an excerpt from a story delivered exclusively to Business Insider Intelligence Fintech Briefing subscribers. To receive the full story plus other insights each morning, click here.We reported that Anglo-South African asset management firm Investec announced it would shutter its robo advisory platform Click and Invest at the end of last week.Its decision, which makes it the second incumbent asset manager in less than a year to shutter an online robo service after UBS, came amid a failure to get lift-off for its fintech project — and it offers valuable lessons about digital transformation for incumbents.Here's what it means: Investec's decision highlights that digital transformation involves more than just upgrading technology.Investec shuttered its robo platform, launched in a bid to disrupt fintechs at their own game, due to low client uptake. The firm launched Click and Invest two years ago, likely in an effort to appeal to customers with smaller investment portfolios than its traditional client base.However, explaining the decision to close the platform, Investec said, “appetite for investment services such as ours remains low.” This is likely because the firm failed to grasp why fintechs had successfully acquired so many customers: their ability to leverage technology to bring price points down and reduce friction in the delivery of services.For instance, Investec's minimum investment required, £10,000 ($12,810), was much higher than fintech competitors like Nutmeg, where customers can open an account with £100 ($128), and Wealthsimple, which has no minimum requirement. Though it subsequently reduced the minimum to £2,500 ($3,203), illustrative of this market misreading, that was still a ways off from its competitors' minimum.Not only did it fail to reduce the barriers to entry, in contrast to many of its fintech competitors, its platform also remained less agile and consumer-friendly, per CityWire.These struggles highlight that digital transformation is more than upgrading IT functions: It requires a clear understanding of a product's value proposition, seamless delivery, and an ability to leverage a business' existing competitive advantage.The bigger picture: Digital transformation continues to upend financial services, but incumbents need a clear vision to succeed.Incumbents need a clear definition of digital to connect a transformation strategy to their core business. For instance, Investec typically boasts clients who tend to be more affluent than those fintechs attract. That it went after its nontraditional client base is not a problem in and of itself. However, its failure highlights Investec's inability to tailor a product for a client base by-and-large alien to its business. Had it done so, Click and Invest could have been a powerful hook for acquiring clients at an early stage of their financial lives and funneling them into its core business as their portfolios grew over time.Relatedly, digital transformation efforts require a holistic approach. Having a broad view would enable the firm to view Click and Invest's business value through a broader business lens than that unit's lack of revenue. For instance, if it successfully brought in a new demographic of consumers, the returns Investec would stand to reap over those customers' lifetime could very well outweigh the lack of short-term returns.Modernizing operations and launching new verticals is laudable — but results take time. Investec shuttered Click and Invest a mere two years after launch. That it needs to provide performance updates on the platform likely forced the firm's hand, restricting its ability for a more long-term commitment of value creation and forcing it to focus its digital effort on short-term goals. Incumbents that want to undertake a transformation journey would be wise to keep in mind that it will not occur overnight, and a more drawn-out timeline is required for success.Here's the industry's opinion, as told to Business Insider Intelligence:“Digital investing isn't going to be a winner takes all market, but what we're starting to see is consolidation across the industry where the companies that are focused on building a customer-first experience, through transparent, low cost, and accessible investing options, will continue to grow and scale in the market. It's also challenging for incumbent players to build the technology needed to grow a digital investing business on top of legacy tech systems which we've continuously seen across the industry.” — Toby Triebel, CEO Europe, Wealthsimple“Investec is not the first to pour millions into an ambitious robo project, only to shut it down — UBS did the same last year. Sure, it's good that they are initiating these ventures, but it shows again that it is very difficult to innovate from within. I think we can expect a growing trend of partnering between traditional firms and fintechs, as more incumbents realize its better to partner with someone that already has built digital products. By leveraging these evolving technologies, they will find more cost-effective and faster alternatives to these high-profile, costly internal projects.” — Lennart Asshoff, CEO, Exo InvestingInterested in getting the full story？ Here are two ways to get access: 1. 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