An increasing number of Baby Boomers and Gen Xers are turning to financial technology after asking their children how to manage their money, according to a FinTech expert, whose new whitepaper explores the future of finance.
The Millennial Generation and the Future of Finance from Wharton FinTech founders Daniel McAuley and Steve Weiner said that Millennials, those born between 1980 and 2000, are encouraging their parents to adopt online financial management tools in favour of human advisors.
The paper defines Generation X as the demographic born between 1960 and 1980, while Baby Boomers are said to be those individuals born in the two decades following World War II. The two demographics are thought to prefer face-to-face relationships with financial advisors.
“As the older generations retire they are turning to their children for advice on what to do with their money,” said McAuley, cofounder of Wharton FinTech. “This is just one of the mechanisms through which the Millennials' preference for technology, networks and mission is permeating the social fabric of finance.”
Growing up during the financial crisis has made Millennials distrustful of traditional financial services firms, according to McAuley, who referred to a recent study from analysis firm Scratch which found two-thirds of Millennial respondents would rather visit a dentist than hear what their bank has to say.
The former financial engineer said banks face the highest risk of disruption by Millennials and many are more excited about the new offering in services from Google, Amazon, Apple and PayPal than from their own nationwide bank.
McAuley says that existing financial services firms with revenue models that are driven by the consumer are the most at risk, with banks like Capital One and Citi trying to mitigate risk by launching innovation labs to test new technology.
Campden Wealth's deputy director of events Peter Newton, whose inaugural FinTech Investing Seminar will launch this November, agreed that Millennials are driving tech adoption among older generations.
“The latest generation of Ultra-high net worth individuals are bringing entrepreneurialism back to investment. Growing up in the digital age means they have a huge interest in, and detailed understanding of, the technologies that are changing the way we live, and are able to convey this to older generations. With the huge disruptive opportunities offered by the FinTech sector we are seeing more and more families attracted to this burgeoning industry”.
Yet this preference for technology is not without its risks, according to Steve Weiner, the other half of Wharton FinTech, who said: “An obvious downfall is a lack of or reduced sensitivity to personal and financial data being generated as a result of heavier reliance on technology”.
He added: “I also believe that financial education will likely lag behind technology and that presents a challenge to FinTech startups who are solely focused on developing new and innovative products”.
Georgia Hanias, spokeswoman for Innovate Finance, a member-driven organisation that seeks accelerate the UK's position in global financial services sector, said that banks are well aware of Millennials' preference for technology.
“The traditional world of financial services still has the lion share of customers because they remain the first go-to place for most people when it comes to saving, investing and borrowing money”, she said.
Adding: “Banks are fully aware of the competition that is around them with the surge in FinTech companies and are trying to compete by developing similar products, acquiring FinTech firms or improving what they currently offer”.
Hanias says most of the incumbent institutions are acutely aware of the problems they have with retaining customer satisfaction and that they must improve services to remain a relevant and viable financial player in the future.
The Wharton FinTech duo agrees and said banks will encounter more difficulties as the older generations follow Millennials down the path toward cashless transactions, both online and in person. They say this will happen seamlessly as new payment startups figure out how improve remove the ever “frictions” from these types of transactions.