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The Future of Money Is Coming. Are Advisors Ready? 

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Money management apps have grown in popularity with the surge of the tech generation — those who grew up and feel most comfortable with technology. Just over 40% of people in their 20s have downloaded these types of apps. Combined with the finding that 80% of millennials don’t invest in the stock market, according to a 2016 Harris poll, this should force investment advisors to understand the new global order of investing, and see how technology can help them grow their firms.

In fact, the tech generation’s actions have spouted new startups that meet their investing needs, such as Stash and Acorns. For example, Acorns “lets users automatically put spare change from daily purchases into a low-risk investment portfolio,” says an Innovation Group/JW Thompson Intelligence research paper, “The Future of Money: New Payments, Currency, Banking and beyond.” Noted the paper, “New apps are constantly popping up to solve new problems that go beyond the conventional framework of the big banks.”

The study found that 87% of American consumers see building long-term financial security as a priority. However, the study also found that only 29% of Americans have an investment account — and the majority of those were age 35 and older.

Although the findings of the papers aren’t surprising, the speed in which disruptive and digital financial products are being developed to meet the appetite of younger consumers is, and it’s happening globally. In some ways, the U.S. consumer market is behind much of the world. The study, conducted in March, researched consumer attitudes towards money, banking, cryptocurrency and financial habits, and surveyed 2000 adults 18 and older, half living in the United States and half living in China.

According to the study, Chinese consumers are more familiar with up-and-coming financial offerings than Americans: 47% of Chinese vs. 12% of Americans are familiar with fintech, 39% of Chinese vs. 19% of Americans are familiar with blockchain, and 39% of Chinese vs. 25% of Americans are more familiar with open banking.

In addition, 72% of American consumers say recent data breaches, such as at Equifax, have hurt their overall trust in financial institutions. Therefore, it’s not surprising that 76% of millennial respondents said they always were looking to try new and different forms of banking, saving, payment and currency. Furthermore, 79% of American millennials, versus 39% of Americans 55 and older, used a banking app. And 37% of millennials (versus 7% of the older generation) used savings apps.

Part of the financial and banking sector disruptions are due to the development of cryptocurrencies, not only as payment, but as an overall decentralization of these businesses, the paper found. The growth in cryptocurrencies, and their acceptance by the younger generation as a form of payment, is well known. For example, 52% of Chinese consumers and 48% of Americans are familiar with Bitcoin, according to the paper, and 58% of Chinese consumers versus 33% of American consumers are enthusiastic about cryptocurrencies.

Tech startups have jumped on this interest, introducing and implementing tokens as a mini-currency on their e-commerce platforms that could be used for anything from products to special objects in the video gaming community. The paper states that $5.6 billion has been raised in token sales in 2017, versus $1 billion raised by venture capital, according to Fabric Ventures, a British cryptocurrency fund.

Payment by Smile

Beyond Bitcoin, and its “digital scaffolding,” blockchain, are other tech ventures that make it easier for people across the globe to transfer money and reduce the friction of paying. One example is the growing popularity of facial recognition currency in China. According to the paper, in September 2017, Ant Financial, a subsidiary of Alibaba,  partnered with a KFC restaurant in Hangzhou to allow customers to “Smile to Pay.” To do this, the restaurant had an in-store 3D camera that analyzed each customer’s face, zeroing in on facial features, which already was allowed by Alibaba’s Alipay payment service.

According to the paper, “Stronger security is added by liveness detection, with computer vision algorithms making sure that the face shown to the camera is not a picture or footage of somebody else.” (A recent Dalbar/ThinkAdvisor study found facial recognition for cybersecurity was used by only 3.3% of U.S. financial institutions surveyed. Voice identification was used by 8.3%, while fingerprint identification was used by 8.9%.)

Of course, advisors may not need this type of technology, but the ability to move money more easily should be of interest. Also, the growth of “mobile wallets” may do away with credit cards.

Chinese consumers spent $12.8 trillion in mobile payments in 2017, up from $340 billion in 2015, according to figures from China’s Ministry of Industry and Information Technology. In fact, about 98% of China’s 772 million digital consumers and 93% of U.S. consumers access the internet through their smartphones. Further, one-third of all fintech startups with a valuation more than $1 billion are from China, showing the direction of app culture in the future of money.

The study also found 84% of Chinese mobile users used banking apps versus 60% of American mobile users.

Mobile payment also is growing for small businesses. In Singapore, buying a bowl of noodles from a street hawker is probably more common than U.S. urban workers buying sandwiches from a food truck. Only now, e-payments pioneer Nets, operating with the banks behind PayNow, recently introduced a QR code system that allows hungry customers to use their smart phone for buying those noodles. However, that doesn’t mean everyone is using these new products. Despite this ease, a new study by the Monetary Authority of Singapore found many consumers still relied on cash and checks for payment.

Other forms of payment beyond mobile and credit cards have been used. During the 2018 Pyeonchang Olympic Winter Games, Visa took a creative route to help athletes and fans pay for goods and services within the Olympic Village, creating special NFC-equipped gloves, stickers and pins that could be swiped to pay. Taking it a step further, earlier this year Adidas introduced a special running shoe that could be scanned as a ticket on Berlin’s public transportation.

The study concludes that going forward, either by force of consumer demand or government nudging, such as the European Union’s Second Payment Services Directive (PSD2), these new ways of transferring money will become the norm in doing business. Driving this already is younger consumers who feel more comfortable with technology in all aspects of their lives. Between 2012 and 2017, 2,600 fintech startups were founded, offering services ranging from banking to insurance to investment, the study reported. The banking landscape already is changing, it says, which means financial services will have to as well.

— Check out Using Technology to Regain Client Trust on ThinkAdvisor.


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