The Strange Relationship Between Fintech, Banks and Millennials
Earlier this month, a user on Quora.com, a knowledge sharing forum, asked a very interesting question, “What are some ways that the fintech industry needs to evolve to better serve younger people today?”
Nadim Homsany, co-founder of Earn-Up, answered the question elegantly.
“Probably the biggest hurdle the fintech industry needs to overcome is educating consumers” writes Homsany. “The best thing the fintech industry is doing and needs to continue pushing is transparency and making sure we adapt our communication styles to something the average consumer can easily understand”.
Homsany’s answer is a culmination of different factors, chief of which is the strange relationship between banks, fintech and Millennials. To understand this relationship, three things need to be looked at: the financial literacy of Millennials, the financial situation of Millennials, and the future role of fintech industries.
Financial Literacy of Millennials
Several different studies have shown that Millennials as a group, have poor financial literacy.
A 2016 PricewaterhouseCoopers and George Washington University study found that only 24% of the Millennials they surveyed had basic financial knowledge. The study also found that despite inadequate knowledge, only 27% of Millennials are seeking financial help or consultation.
While alarming, these figures make sense given the group’s history with banks.
Financial Situation of Millennials
The current financial prospects of Millennials are grim. In the U.S, there’s an estimated 13-year delay in retirement date for Millennials. Even when they do retire, there’s a good chance they’ll only receive 75% of their Social Security benefits.
A Canadian study found that 54% of Millennials expressed concern about their ability to repay their loans. Among college-educated Millennials, a staggering 81% have at least one long-term debt.
Figures such as these and growing up in the shadow of the 2008 financial crisis—along with the bailouts that followed—has soured Millennials’ view of conventional banking.
Fintech, Bridging the Gap
Like Millennials, many of today’s fintech firms also grew up in the shadow of the 2008 financial crisis. The crisis and its fallout, demonstrated the inefficiency of the banking system. Many in the tech world saw that there was enormous opportunity to provide what the major banks lacked: speed, transparency, good UX, functional mobile apps, improved customer service and budget-friendly services.
Since the crisis, a greater reliance has been placed on managing one’s own personal finances. Fintech firms seized the opportunity, seeing the industry expand to an estimated annual growth rate of 46%.
Fintech firms are in a unique opportunity to help Millennials, and in turn, continue their growth. Approximately 70% of Millennials want to learn more about personal finance, and they still need financial services.
“Those that succeed [fintech firms] will have to bring a personal and technological approach to banking, one that’s as advanced and millennial-friendly as the transportation and communication industries have become. The products that result may not necessarily replace banks, but I believe they will create seismic shifts in the industry to help make banking the way it should be”.
Millennials have already surpassed as other groups in the workforce. They’ve already started impacting several industries. There’s an opportunity for a mutually beneficial relationship for fintech firms and Millennials. As the technology becomes more accessible, there’ll be a major growth in financial literacy causing a change in older institutions.