Women are the New Face of Wealth; Let the FinTech Race Begin

Thanks to the internet, birth control, more widespread access to education, and global trends surrounding gender equality, women are more educated and wealthy today than ever before.

We’re seeing the emergence of women as independent, financial powerhouses as a cultural phenomenon — not just as sporadic outliers.

Lowkey flex: single women are the largest demographic buying houses in the US behind married people, and are the fastest growing home buying group.

That’s great, right? Yes, but also no.

The problem is that while women have more disposable income they don’t have the right products to make the most of this increase.

Don’t believe me? For every dollar owned by an American man has, a woman only has 32 cents…

This is known as the wealth gap, and it’s reflective of more than the bias that drives the standard wage gap. The wealth gap underscores that even though the wage gap is narrowing there’s still work to be done so that women leverage that money smartly.

The wealth gap exists for a host of reasons, but most notably the ones below:

• Traditional financial service providers are woefully out of touch with modern consumers, particularly women and historically excluded groups.
• Gender discrimination results in the pay gap and other shortcomings, making the way women use financial products different than men.
• Culturally, we fail to prepare young women to be financially healthy.
• Without the proper education and tools to get started, women often choose to avoid saving or investing altogether — Google “the investing confidence gap” or “female finance paradox” for more on this.

A handful of major instances where incumbents fumble the bag with women

Despite these major impediments, women are rising to the challenge and building products to answer the call. Ellevest, Sequin, and Jefa are all standout examples of innovative start-ups making financial health for women, by women.

Apart from the ethical component of women needing better financial services, there’s also a seriously lucrative market opportunity to win women as customers. We know women default less often on debt despite having more of it, generally live longer (better LTV), are poised to inherit $28.7T by 2030, and already direct 80% of all consumer spending in the country.

Data on average credit score versus default rates by gender

How do we deliver financial services to women that enable them to make more informed personal finance decisions, grow wealth, and develop confidence in their acumen?

Folks tend to approach this question with one of a handful of beliefs:

1. Improving access to sticky financial literacy is the key to getting women engaged.
2. Rewrapping traditional financial products with more user-friendly and social-oriented components can attract women as customers.
3. Women need net new products to address modern challenges and attitudes.

Companies currently serving women, whether explicitly gender targeted or not

Since this is an opinion piece, my hot take is that belief one misses the mark. People who are intimidated by money management don’t go seeking out financial literacy. If they do, and are willing to pay for it, it’s likely that they’re already in a medium to high income bracket, loosing the impact value.

Personal finance is a phrase that causes a pulse raise for most folks in this country, no matter how much startups try to gamify it. With a growing amount of finance apps on our phones these days, how compelling is a standalone education component with no real world application?

IMO, financial literacy offerings disconnected from real gains aren’t compelling enough to keep a user meaningfully engaged.

Belief two is where things start to get interesting. User-friendly interfaces that take a page from the D2C marketing playbooks make finance more approachable and can generate more traction to their products. Take note of Ellevest in this context, they’ve absolutely mastered branding financial wellness. But I can’t help but wonder if this is sufficient to keep women consistently engaged on the platform and consuming more products after the initial sign up. While this might get more women on to a FinTech platform and interested in investing, repackaging alone doesn’t address the major structural issues present in traditional financial services. I’ll expand more on these structural issues later.

TL;DR user-friendly financial products directed towards women are great at attracting initial users but fail to address fundamental issues that women face.

As you might have guessed, I’m camp with the believers of claim three. While rewrapped products may get me to feel confident enough to start investing, these offerings don’t actually attack what I view to be the problem: outdated financial services for women’s evolved societal standing.

A few examples of outdated services missing the mark:

• Due to gender pay gap amongst other factors, women are consistently given lower credit scores on average. Being rated as less creditworthy would predict that women perform worse in repayment, but when looking at debt repayment data we see that women actually default less than men. Considering the fact that women generally have more debt, something clearly doesn’t add up. Women need access to unique or differentiated credit and debt, because they are not being well underwritten today.
• With more financial stability as individuals, the joint account can also be challenging as it fundamentally erases the financial identity of an individual (this is particularly pressing as women face more challenges in becoming creditworthy) if it is the only account an individual has. Women need banking products that encourages them to actualize their creditworthy behavior.
• Mo’ money mo’ problems. Women’s elevated financial profile is definitely a win, but it’s creating new needs. This spans from the need for embedded debt management (since we know women are some of the biggest consumers of debt) to the need for more targeted financial tools and loans in the fertility space and can even relate to the need for household spend management since women typically function as family CFOs and caretakers. Women need targeted products to bridge the new challenges they face.

So the question is, who will win over the women?

My guess is that it’s not incumbent financial institutions who will win the women. Not only have they been slow to adapt technology at large, but they already have a seriously pitiful track record when it comes to relating to female consumers. No seriously… check out some of the exasperating experiences women have had with advisers in this BCG report.

Neo-banks like Chime have already seen major success in capturing and engaging underserved consumers, why not pursue women more directly?

With the sheer amount of capital that women are anticipated to steer after the wealth transfer from Baby Boomers, the platforms that win women today will benefit from high performing and loyal customers tomorrow.