What interest rate rises could mean for investors

Claire Mack | Financial Services Strategy Manager, Worldpay from FIS

April 28, 2022

2021 was an exciting year for investors, and many will have likely seen a strong performance from their portfolios. Across the markets, shares were buoyant, a raft of privately owned businesses went public and US stock indices all reported significant growth, ranging between 18.7% and 26.9% for the year.

Last year, low interest rates encouraged enthusiastic investors to make moves that sent stocks soaring. However, 2022 could look very different for institutional and retail investors alike.

In response to surging inflation, the US Federal Reserve raised interest rates in March for the first time since 2018 by a quarter percentage point – with plans for six more raises by the end of 2022.1 The effect of this rise could be felt across global financial markets.

And as rates change, investors may be looking to reposition or diversify their portfolios, which may result in moving investments around more frequently. Global markets will likely face a prolonged period of adjustment, and this could impact how people invest in general.

Taking stock of changes

In a high interest rate environment, stocks become a less appealing option. As such, investors may consider moving funds away from stocks and into new bonds, savings accounts and bank deposits. Forecasts remain uncertain for now, but savvy investors will be keeping a close eye on changes.

Whatever emerges this year, investment platforms and firms must be prepared for all scenarios – including one in which competition really heats up and costs need to come down.

What does it mean for you?

In a turbulent market, investors may be more likely to prioritize speed and ease when moving money across their portfolios. Rates can change quickly, and a slow payment process could be costly.

While the focus now may be on current stockholders, we can’t ignore new investors entering the market. For those investment firms hoping to bring in new consumers and build a portfolio with them, this means making both investments and payments as simple as possible. The investment world can be complicated, so providing new customers with an ‘easy way in’ could encourage them to join.

Solutions for faster, easier investing

In a competitive market, offering investors a faster and more convenient payments experience could be a way of gaining ground.

We have already seen increasing expectations for convenience and accessibility in payments across the entire financial services sector. For example, mobile payments are surging in popularity thanks in part to an increasing number of Millennials and Gen Z consumers entering the market.1

Embracing ever-changing payment preferences is necessary for investment firms and platforms to keep ahead in the race to build a stronger or larger customer base. One way of doing this is by offering alternative payment methods – everything from global mobile wallets to localized offerings.

The benefits of alternative payment methods

Alternative payment methods are important, as they can offer frictionless experiences for consumers, making the end-to-end investing process easier. This may result in a stronger customer base with less churn, which should increase acquisition. In fact, 38% of financial services customers will abandon their cart if they cannot find their preferred alternative payment method.1

Alternative payment methods can also help businesses make recurring payments easier. Digital wallets in particular are preferred by customers, with 73% willing to use them for recurring payments. Plus, re-entering the same payment details over and over can lead to disgruntled investors with 46% more likely to complete a purchase if their personal details could be pre-filled on the payments page and 43% more likely to if they could use the pre-filled details stored in their own browser.1

For many, traditional payment methods may be too slow to allow investors to respond as quickly as they need to. For example, withdrawing investments from one fund to pay into another may mean waiting for days. This would likely impact the overall investor’s experience or their portfolio.

A solution like FastAccess enables real-time payment of funds straight to cards while also tokenizing payments data for an added layer of security.

Leveraging the existing infrastructure expertise of a partner like Worldpay from FIS® could be a smart move. Worldpay can connect businesses with a comprehensive selection of global alternative payment methods as well as the tools needed to help make recurring payments faster and more secure.

A new way to invest

The interest rate rise has the potential to encourage increased activity from both seasoned investors and new entrants. But key to ensuring positive outcomes and experiences will be selecting the right payments technology.

If you’re looking to foster customer loyalty and build up your own portfolio of happy clients, be sure to talk to us today. We can help you leverage the potential of alternative payment methods, recurring payments and global payment options.

To grow your business, invest in your investors’ experiences. It could be one of the best decisions you ever make.