Four Trends To Look Out For In Finance & Tech In 2016
Originally posted on Thursday, Jan. 7, 2016
As we turn the corner into another new year, predicting what the future holds is a time-honored tradition like champagne toasts, fireworks and inadvertently writing the wrong year at the top of every document.
With that said, following is what I see as the four pivotal trends to keep an eye out for in the world of financial services and technology in 2016.
1. The Continued Rise of “Fintech” Companies
Over the past several years, a new group of financial companies has emerged with a tech-first mentality, focusing on automation, user experience and cost efficiencies. The so-called robo-advisors — Betterment, Wealthfront, and other digital portfolio allocation companies — led the way in collecting assets from individual investors looking for a more user-friendly investment tool. However, 2015 saw a few major financial players — Schwab and Vanguard and, most recently, Fidelity being the most high-profile — fight back against these young upstarts and start to vacuum up assets of their own.
While some predict these smaller companies will be put to the sword by larger, more traditional incumbents, I think they will maintain their share of the market and continue to grow their assets.
Either way, the end customer will end up the winner. The standards set by these “fintech” companies — better user experience, increased transparency, lower fees, top-shelf mobile apps — are now being adopted by a number of older financial companies who see their consumer base changing. This is the new normal in finance, and older companies are choosing to evolve rather than perish.
2. The Move Toward Mobile-First in Finance
When you need something these days, what is the first thing you do? Pick up your phone. Whether you’re checking a bank account, looking for directions, snapping a photo, or simply Googling something, people have come to rely on the smart phone as their go-to multi-tool.
The desktop PC that many of us have grown up with is increasingly becoming an antique idea as tablets and smart phones have quickly taken market share from their older cousins (although, to be fair, the traditional PC as we know it is not quite dead… yet). In fact, billions of people around the world are leapfrogging the desktop entirely, instead relying entirely on mobile phones as their go-to computing devices. And, importantly, there is a wide range of companies who have recognized the trend and are creating services and solutions with this mobile-first mentality in mind.
At a recent conference hosted by news outlet Quartz, called “The Next Billion,” experts in an everything from finance to philanthropy discussed how the next billion people who come online — those in developing countries around the world — will rely heavily on the mobility and flexibility that a mobile device offers. Companies — particularly in financial services — that pay close attention to how people are using technology and tailor their services to best serve those consumers will find themselves at the top of the pile.
3. Lower Fees Across the Board — Thanks to Competition from Technology
The second half of 2015 wasn’t kind to investors. Even the Santa Claus Rally couldn’t prevent the Dow Jones Industrial Average and the S&P 500 from finishing the year in the red (or just slightly up from last year, if you reinvested dividends). With 2016 starting with a resounding thud in the markets, many investors are worried that the New Year hasn’t left 2015’s volatility and languid returns behind.
If you are a young investor just beginning to contribute to a retirement plan or try your luck in the stock market, fees can eat away at what might be already an underwhelming return. Luckily for the consumer, financial services technology is working in the consumer’s favor to lower prices.
Startups have been using technology to drastically lower prices over the past few years and have shown no signs of slowing down. Companies like Betterment and Wealthfront offer basic portfolio diversification and tax-loss harvesting for as low as 0.25% a year, and fintech startup Robinhood offers $0 commission brokerage trades.
But it is not just startups that are lowering fees. Larger companies, like BlackRock, Vanguard, Fidelity and others, are slashing prices for their exchange-traded fund (ETF) products. BlackRock’s iShares recently cut the fees of many of their core products, getting down as low as 0.03% annually — that’s a $30 fee on a portfolio of $100,000 invested in the iShares Core S&P Total U.S. Stock Market — which is wildly inexpensive. Fidelity and other large brokers are even using technology to improve trade execution, which helps their small brokerage clients get better prices on trades. These all add up to good signs for consumers and investors.
4. Consumer Expectations are Changing. Rapidly.
The consulting firm Accenture found that, over the next 30 to 40 years, $30 trillion — yes, trillion — will be passed from Baby Boomers to their Gen X and Millennial heirs.
These younger generations have grown up with the advent of the Internet and the rapidly-accelerating shift away from a time when waiting patiently through a dial-up tone was an exciting experience in itself, to an era when the entire city of New York will be blanketed in gigabit-speed free wifi (that’s 100 times the speed provided by wireless carriers, by the way).
Consumers today have been conditioned by the Googles, the Venmos, the Ubers and the Amazons of the world — not to mention the countless tech startups popping up on a daily basis — to come to expect this type of convenience, speed and user experience in all facets of their life. Even industries that traditionally have less-than-stellar customer experiences, such as real estate and health insurance, are getting next-gen makeovers with the likes of startups such as Opendoor and Oscar, respectively.
For financial services companies that have long been thought of as providing opaque and complex services in exchange for often-generous fees, this shift in consumer expectation has forced companies to step back and reexamine how they can serve their clients. Many financial services companies, both large and small, are already doing an excellent job at adapting to meet the needs of a younger, more tech-savvy, user experience-focused generation. In fact, a recent Pew Research Study found that Millennials, more than any other generation today, have the most positive view of financial services companies. This is a great sign for financial companies who want to appeal to this growing — both in numbers and in assets — group of customers.
2015 was a busy year in the increasingly-colliding worlds of financial services and technology, and the coming year should bring with it even more innovation and excitement. I, for one, am looking forward to seeing what happens.
Photo Credit: Christian Schnettelker, Flickr