As Canada continues to undergo drastic demographic change, millennials and their needs and ambitions are becoming an important topic as society grapples with accommodating a demographic radically different from its predecessors. From politicians embracing social media to major corporations spending billions to create products specifically for millennials, every sector of economic, political, and social life is undergoing rapid change to make itself more millennial-friendly.
Every sector except banking that is.
While banks have been busy innovating in terms of creating complex securities and derivatives with the financial power to take down the developed world, retail banking has remained unaccommodating to millennials. As a result, there has been an influx of disruptive startups that aim to revolutionize consumer banking and force the financial service industry into the 21st century.
Distrusted and Disconnected
According to a 2015 Innotribe paper “The Millennial Generation and the Future of Finance: A Different Kind of Trust,” over “half of all Millennials […] do not believe their bank offers anything different from competitors, and over two-thirds would rather visit a dentist than hear what their bank has to say.” The paper found a whopping 33% of millennials believe that they don’t need a bank at all. If that isn’t enough to convince you of the growing disconnect between millennials and retail banking, a study compiled by Princeton Survey Research Associates International found that an astounding 63% of millennials do not even own a credit card. Given the widespread level of economic pessimism among millennials, coupled with a sluggish industry refusing to adapt to changing consumer needs, the financial industry is ripe for disruption.
The inability of the banking industry to meet society’s changing needs has led to an explosion in new financial products and companies known as “fintech,” a portmanteau for financial technology. Fintech combines finance and technology, aiming to create a financial services sector that is more transparent, useful, and accessible to underserved individuals, particularly those individuals with bank accounts that aren’t in the hundreds of thousands.
Bridging the Educational Gap
Anyone who has gone through the public education system as of late, including myself, may remember being forced to learn useless historical dates and mathematical formulas that have little practical value outside of school. Unfortunately, what I don’t remember is being taught even the most basic financial skills upon which my survival as an adult would eventually depend. All of the major banks have token financial literacy programs that print publications, host seminars, and engage in a wide variety of other educational communication that doesn’t resonate with millennials. Fintech companies, however, embed financial education into every facet of their operations, delivering it in a manner that’s inherently millennial-friendly.
Level Money is a financial management tool that is “dedicated to rewriting the financial rulebook to create a secure future for the next generation.” Level Money has made financial education an integral component of its business model, delivering practical, relevant financial knowledge in a medium (mobile) that resonates with millennials. Level Money allows users to build comprehensive, personalized financial profiles that take budgeting to an unprecedented level of convenience. At my bank, TD, the options for budgeting were almost non-existent. Apart from a hastily thrown together page that mostly restated financial tropes, TD offered almost nothing to individuals like me looking for a practical means of budgeting and tracking their spending. Level Money provides me with a platform that allows me to visualize my spending habits directly on my phone. Additionally, the insights and advice it offers allow me to spend and save more effectively without having to visit a financial planner in-person and receive advice that often isn’t applicable to my financial goals.
Markets for the Masses
Another component contributing to the disconnect between traditional banking and millennials is the inaccessibility of many of the financial products that they provide. Most banks make it difficult for individuals with modest amounts of money to invest in the stock market, shutting them out of the process altogether and drastically limiting their options for growing their wealth. They charge exorbitant fees, set high account minimums, provide little in terms of guidance, and scare off many prospective investors with mountains of paperwork and financial jargon. The result is generational economic disenfranchisement that effectively excludes millennials from the stock market.
Many fintech companies such as Wealthfront aim to democratize access to the financial markets essentially by doing the exact opposite of what traditional banks and online stock brokers do. They charge no fees, have small account minimums, and explain investing in layman’s terms so that anyone and everyone can invest and grow their portfolio. Wealthfront allows individuals to start investment accounts with as little as $500 and charges no commissions and fees for the first $10,000 dollars invested. Fintech companies are breaking down the barriers to entry in the stock market and empowering millennials with products that not only reflect millennials’ economic capacities and circumstances, but satisfy their expectations in terms of ease-of-use and convenience as well.
The Future of Finance and Banking
Millennial discontent with banking is real and so is the interest in alternative solutions that it’s spurring. With three billion US dollars invested in the industry as of 2013, and projections that it will rise to eight billion by 2018, fintech is undoubtedly one of the most dynamic sectors in the economy. From apps that allow people to invest commission-free from their phones to digital currencies that seek to reinvent the entire global monetary system altogether, fintech isn’t a minor tweak in an industry we’ve had for centuries, it’s an entire reconceptualization of banking as we know it.
The media, marketing and retail sectors have changed immensely to satisfy millennial needs. Fintech is banking’s equivalent to industry disruptors like Uber, and given the exponential growth in interest from both investors and ordinary individuals, it’s positioned to radically alter the way we conceive of banking. With the memory of 2008 still fresh in our minds, and millennials poised to become the driving force of the global economy in the decades to come, the rise of fintech is needed now more than ever and its impact will be felt all the more extensively because of its impeccable timing.
May we continue to live in interesting times.
Banner illustration courtesy of Wanderer Online Design Editor Janelle Holod.