Seven ways technology is reforming personal finance
Technology has already deeply and forever altered the way that we communicate with one another. It’s changed the way we consume entertainment and news. It’s even changed the way news itself is vetted and reported.
So it’s probably not surprising that technology is responsible for equally seismic shifts in the way money is managed, created, cultivated, shared, and spent. The financial technology (or FinTech) industry is expanding rapidly as investors pour money into these new tech firms. FinTech firms raised $12 billion in investments in 2014 – three times as much as they raised the previous year.
Why are investors so excited about the potential of FinTech services? Because, in the eyes of many experts, personal finance is where the next major consumer revolution will be centered. Much in the same way that streaming content services like Netflix and Hulu changed the way people watch television and movies, FinTech firms are attempting to radically alter the way people interact with money.
These new tech companies and the products they’re creating represent an enormous shift away from the established, entrenched behemoths that have long dominated the financial sectors – the “flabby incumbents” as nicknamed by The Economist. You don’t even have to be an adopter of these new technologies in order to feel the ripples they’ve created, just like you don’t need a Netflix account to experience the ways in which entertainment as a commodity has changed in the past ten years.
Smaller, faster, cheaper
The local credit union isn’t dead by any means, but banking, by and large, has been dominated in recent years by a small number of global mega-corporations. New players are hard-pressed to match the size and scope of these established brands, limiting competition.
Emerging technology, however, means that new FinTech players don’t have to match these corporations in either size or scope. Instead, they can deliver specific, targeted services directly to consumers with substantially less overhead. FinTech is all about quality, accessible products with a minimum of fluff or fuss.
“We don’t pay for mahogany desks,” says Catha Mullen of Personal Capital, an investment management platform recently named to CNBC’s 2015 Disruptor 50 list, highlighting innovative businesses that are profoundly altering the business landscape. Instead, Personal Capital, like most thriving tech businesses, invests primarily in its core product and services.
That focus on cutting edge analytics, clean infrastructure, and intuitive design is how smaller, less established companies are able to compete with bigger, brand name providers.
“Our service combines high tech with high touch,” says Mullen. “All at half the cost of a traditional advisor.”
Being light on their feet allows these smaller start-ups to develop and produce their products quicker, entering markets ahead of larger companies. That means more innovation, faster turnaround, and a cheaper end result - three things modern consumers value highly.
Creating new habits
New habits don’t stick until they become part of your routine. FinTech developers recognize this and work hard to create digital products that fit seamlessly into your existing routine.
That’s especially important when it comes to financial products. Money management is something many people struggle with. It becomes an impediment to their routine, rather than a part of their routine.
Apps like MoneyStream are designed to organize and simplify your daily finances by giving you the data you need to make informed choices, while automating select monthly functions. By literally putting the tools needed to manage money into a consumer’s pocket, FinTech has begun to shift our entire perception of personal finance. It stops being a chore, like cleaning the basement, and becomes a routine, like cleaning your teeth.
Unlocking the peer-to-peer economy
Uber turned simple car ownership into a potential source of income. Airbnb gave homeowners the chance to be temporary landlords.
Technology has long connected us socially, but FinTech is constantly exploring new ways to connect us financially. Peer-to-peer lenders like Lending Club and Prosper use technology to connect borrowers with investors, sidestepping larger financial institutions altogether, keeping interest rates low and investment returns high.
That two-way road is key. By creating a digital middleman, these new technologies are building both consumer connectivity and marketplace competition, in all directions. Consumers have more flexibility and options. That means more ways to make money, save money, and spend money.
Specific solutions to specific problems
Modern technology’s ability to connect consumers across state lines, oceans, hemispheres, and more means that there is no issue or population too small to warrant attention. This means that for every unique problem there likely is (or will be) a unique program or platform available to address that problem.
MMI’s national expansion over a decade ago was predicated largely on the usage of leading communication technology and software. Consumers dealing with a specific financial hardship could suddenly connect with a counselor trained to address that very hardship, no matter their location. Proximity became meaningless.
Meanwhile, unexpected solutions arise all the time. SupportPay is a platform designed to help parents manage child support payments as painlessly as possible. It coordinates, communications, and organizes digitally to help keep things transparent and conflict-free. It addresses a problem many people may have never even considered could be addressed.
Sparking wider change
More important, perhaps, than any particular feature offered by these new technologies is the impact FinTech is bound to have on the financial sector as a whole.
Just as film and cable television have seen their market shares challenged by cheaper, more focused content providers, so too will large financial institutions find themselves losing customers who don’t feel like their needs are being met. And as those customers jump ship, the “big banks” will be forced to find ways to offer better, more affordable products. In many cases this has already begun as multiple global banks have placed a premium on developing technology that proactively anticipates consumer needs.
And so ultimately, whether you’re an early adopter, a late adopter, or a never adopter, you will benefit from the FinTech revolution in the end.