Millennials and Fintech

Millennials (generally taken to mean people aged between 25 and 34) have overtaken Baby Boomers as the largest generation. Now, as they move into their major spending years, this is having huge ramifications in terms of how finance is conducted.

Put simply, millennials are less intimidated by and more trusting of technology when it comes to their finances. They trust technology more than previous generations and are more accepting of advice, help and information from non-human bots.

A different worldview

The very different worldview of millennials from any generation that has gone before will have a massive impact on our economy. Their choices with marriage, buying houses, investing in healthcare and making big purchases is shifting and changing the economic landscape.

And it’s all down to their early adoption and acceptance of technology. Having grown up with the advent of mobile banking and business apps, it’s second nature for millennials to use these in every day personal and business transactions.

While banks have been forced to change their business models in the face of this technological shift, investment firms, including the Blackmore Group, are now feeling the biggest changes in this area.

Trust in online platforms

“Millennials are comfortable with robo-advisors and actively support these kinds of platforms,” explains Phillip Nunn, CEO of the Blackmore Group Manchester. “So, we’re seeing a real sea change in the financial advisory sector, with investors happy to interact with low cost service providers online.”

Algorithmic investment platforms make sense to millennials precisely because they’ve grown up with an intimate familiarity with the Internet. Mobile banking removed the need to ever walk into a bricks and mortar bank, and it’s a natural evolution to conduct investment business in the same way.

Are online investment platforms sustainable?

The Chartered Financial Analyst (CFA) Institute recently conducted a survey called ‘From Trust to Loyalty: A Global Survey of What Investors Want’. Its results support this trend for millennials to put their trust into online service platforms over traditional financial advisors.

Although this appears to be the shift the market is seeing, is there any basis to assume longevity in using technology as a long-term instigator for millennials choosing and using investment advice?

The CFA survey polled retail investors to see what they thought would be more important to them over the next three years. At first reading, the survey clearly indicates that investors and fund managers (68 per cent of respondents) want human interaction and help when it comes to investment strategy. Just 32 per cent overall favoured the latest technology apps and platforms over human interaction.

Millennials buck the trend for human help

But, when the results are looked at and evaluated by age group, then a very different picture emerges. Every other age group asked the question in the survey favoured human interaction when it comes to financial advice, except for millennials.

They narrowly, but clearly, favour FinTech over people, and expect this to continue in their financial future. As millennials acquire more wealth and begin to start investing it in real terms, investment advisory services are going to have to come up with more and better ways to provide the value millennials expect.

Competition will grow, as start-ups harness the power of low cost advisory platforms, and advisory companies will need to stay one step ahead if they want to keep their clients and gain new ones.

The question of cyber security

The survey also highlighted key areas that advisory companies will need to focus on going forward: investment costs, ethical standards and cyber security.

Global investors are becoming as concerned with initial investment costs as performance, due to the increase in availability of cheaper online advice. Ethical standards rank the highest among priorities for investors, which demonstrates their changing outlook in general. Transparency and cyber security are huge concerns as well, when it comes to selecting platforms investors want to work with.

As FinTech platforms are designed to function without people as middlemen, the transparency of information becomes way more important. Investors have to trust the platform and it becomes difficult for them to know for sure whether their interests are safe. This can lead to investors simply not fully understanding what kinds of services they’re purchasing.

There are an increasing number of reports of fraud when it comes to crowdfunding sites, for example. The Virtual Reality start up Oculus started on Kickstarter, gaining contributions from around 10,000 people. People who saw themselves as investors. However, when Oculus sold out to Facebook in 2014 for $2 billion, it turns out they saw these contributors as donators. There was no investment return for people who contributed at the beginning.

Identity theft and fraud a possibility

Aside from people potentially not understanding the terms of investment, there’s also the risk of cyber crime in the form of identity theft and fraud. If investors aren’t diligent and fully taking responsibility for the information they lay out, then they could be laying themselves out for fraud.

Analysis shows that millennials, as well as being accepting of using online platforms, are more likely to do so without checking risks first. However, they’re starting to demand more information and reassurance in terms of cybersecurity when it comes to selecting investment platforms. This is likely to outweigh performance when it comes to who they want to work with.

Will this slow down the grasp of FinTech for millennials when it comes to managing their investments and money? Unlikely. It’s more likely that the advisory businesses will adapt their cybersecurity and transparency of information.

Phillip adds: “Both investors and service providers are working with the growing realisation that nothing stays the same for long in the world of online platforms. Convenience and accessibility comes at a cost of the need to be constantly vigilant.”