Fintech: for Millennials Only?

Fintech is widely seen as a disruptor of the traditional asset management industry with their heavy use of technology, low overhead and their millennial appeal. However, it remains to be seen if fintech firms can remain sustainable in the long-run with their narrow focus on millennial clients.

Background

The Millennial generation starts saving earlier and more than any generation before it. The generation that came of age during the financial crisis of 2008 values saving, much like the generation that came of age during the Great Depression.

However, millennials are not making as a high return on their savings as they should because of their preference to hold their savings in cash. Traditional asset management firms have found it harder to attract millennials with these spending and saving patterns. This could be because millennials are the generation with the highest likelihood of not knowing how much interest they are earning, let alone should be.

Fintech companies in Europe are aiming to change millennial investment behaviour with inexpensive and intuitive investment options. Revolut and Plum – two of the fastest growing fintech companies – have gained almost 3 million users in the last two years, most of whom are millennials. These companies are creating funds with themes that are better suited to the interests of millennials, including sustainability, healthy eating and artificial intelligence.

Analysis

The very hallmarks of traditional asset management firms are some of the factors contributing to the dearth of millennial clients. Financial advisors typically see the development of personal relationship as key for retaining clients. They take time to understand their clients’ financial situations and then outline personalized investment options. However, millennials often prefer low-interaction business models – like shopping on Amazon, and communication on Facebook – making the methods of traditional financial advisor less appealing.

Fintech firms are able to keep their costs low by moving away from the operating styles of traditional firms. Using a standard approach to investing, minimal customer service and focusing on marketing efforts primarily through social media channels allow fintech firms to be more economically efficient than older asset management firms.

Asset management firms typically impose a minimum requirement for investments that is fairly large – often upwards of $100,000 – while fintech firms can attract more clients by eliminating high minimum investments. As the largest living generation, and one that will eventually inherit the wealth from previous generations, attracting millennials as clients early in their lives allows for long-term loyalty.

Counterpoint

Critics of fintech firms that cater primarily to millennials argue that waiting for millennials to gain significant amounts of money is a losing strategy. The older generations have considerably more wealth and it will take a long time for this money to actually reach the millennial generation. Waiting for that time could be unsustainable for fintech companies.

Critics also argue that the fintech model of investment does not adequately meet the needs of older generations, which include saving for their children’s education and parents’ medical bills. Given the varying nature of investment goals that older generations hope to meet and the strong focus on profitability, the standard approach of fintech firms is found to be lacking.

Assessment

Our assessment is that fintech firms have the potential to incentivize millennials to take up investment strategies to ensure high returns on their savings. We feel that fintech firms align well with millennial interests while providing opportunities to begin investing. However, we feel that fintech firms should aim to cater to more than the millennial generation and widen their audience. For fintech firms to remain economically sustainable with growth potential, they will need to find a way to attract millennials who invest small amounts of money but have stronger social impact agendas with older generations who care more about the returns on their investments.