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FinTech is revolutionizing financial services for the Millennial generation
It is indeed hard to imagine a world without the Internet or mobile devices. Especially so when the Baby boomer generation is fading away, the Gen X’s are growing old, and Millennials are handed the baton. According to Goldman Sachs, the largest generation today are the Millennials, with 92 million people, and, according to the U.S. Bureau of Labor Statistics, Millennials will comprise 75% of the country’s workforce by 2030.
With Millennials being the first generation to grow up with technology, their intimate bond with technology in every sphere of life, has disrupted daily life as it was known up to contemporary times. In fact, many major industries have had to re-think their marketing strategies because of the total break the Millennials are taking from the way earlier generations lived their lives.
The financial services industry is no exception. The digital revolution that Millennials have brought about, is transforming the way customers access financial products and services. Even though technology has affected financial services in recent years, the consistent intrusion of technology driven applications in nearly every segment of financial services is a new phenomenon. 68% of Millennials think that how we access money will change in the next 5 years, while 33% believe banks will cease to exist over the next five years.
And so, Fintech came into being, as a term referring to companies or services that use technology to provide financial services to businesses or consumers. Research shows that Millennials are extremely receptive to banking with FinTech companies as only 28% would prefer to use a traditional bank, and only 13% don’t trust FinTechs.
“We thought we knew our customers, but FinTechs really know our customers,” said a senior executive at a global banking organization
FinTech appears to be gaining momentum and is disrupting financial services in a big way. Funding of FinTech start-ups more than doubled in 2015, reaching $12.2 billion, an increase from $5.6 billion in 2014.
On the other hand, Millennials’ financial needs go beyond simply wanting to bank with a non-traditional company. According to recent research, FinTech firms seeking Millennial business, need to prove they are mobile-friendly. With the average millennial spending about 18 hours a day on some kind of digital media, they believe in doing extensive research on products and prices, comparing value for money, configuring your trading software, while engaging social media friends to discuss their experiences with the products.
Social media expert Scott Cook says,
“A brand is no longer what we tell the consumer it is – it is what consumers tell each other it is.”
Millennial expert Crystal Kadakia said,
“People who have been there forever, left to their own devices, are rarely in the best position to design the future. It’s those who consciously listen to the constituents of the future who can understand which direction to move in.”
Therefore, it is no surprise that technology focused start-ups and new market entrants are innovating already existing products and services to suit Millennials needs.
Battling to stay relevant by living up to consumer expectations, existing banks are gradually adopting new solutions to improve and simplify operations, moving away from physical channels towards mobile delivery. They are also offering enhanced accessibility, convenience and tailored products.
As FinTech companies raise their profile, traditional financial institutions are preparing to lose a slice of their business, some believe about 23%. However, Fintech companies are anticipating to acquire about 33% of current business. The reason is, FinTech companies are not just bringing concrete solutions to a transforming customer base. They are adding new services that can be provided through technological applications.
This rise of “digital finance” allows consumers to connect to information anywhere, at any time and digital services can address their needs in a more convenient way than traditional nine-to-five financial advisors can.
Traditional financial advisors face significant competition from automated investment advice from robot-advisors. The attraction of robot advisors is they are available when the Millennial customer needs them, at whatever time of day or night. The customer does not have to change his or her schedule to suit the financial advisor’s availability.
Taking on the challenge, traditional providers are increasingly taking a mobile-first approach to reach out to customers. Given the speed of technology development, traditional banks find they cannot afford to ignore Fintech. According to the Economist, though, 54% of bankers are either ignoring the challenge or talking about disruption without making any changes. However, when digital products and services are available though on-demand streaming, Millennials are unwilling to accept archaic payment methods that take days to settle, rather than seconds.
Security and privacy are critical reasons for Millennial customers preferring digital transactions.
The morphing business environment looks to the $30 trillion future spending power of Millennials, as Baby boomers and Gen X pass on their wealth to the Millennials. This transfer of wealth will also bring about an enormous shift in the way companies think about and facilitate investment. As Millennials seek investments that are beneficial to society and the environment, there will inevitably be a moving away from traditional investment opportunities toward ethics-first “impact investing.”
Millennial expert Crystal Kadakia, drives home the point when she said,
“We thrive when we are pulled by the future, not pushed by the past.”