If pressed, chances are you could come up with some unflattering names for Millennials. The media often calls them trophy kids and snowflakes, self-involved and entitled, and they’re regularly ridiculed for their wasteful habit of spending too much on brunch. But there’s another side to this generation. They’re a tech-savvy group of trendsetters who value progressive and innovative ideas when it comes to their finances. And now, they’re no longer sitting at the kids table.
All grown up, Millennials are at an age when they’re ready to invest in their futures, but they’re doing it in a way that challenges the status quo. While traditional financial services are struggling to satisfy this demographic’s needs, emerging fintech companies are tapping into Millennial’s preference for tech, automation, and convenience.
Fintech’s biggest targets are Millennials because they’re a generation primed and ready for change. It makes sense when you remember this group came of age during the financial crisis of 2008. The oldest of its generation were just leaving their university to enter a job market where very few opportunities existed. This was at a time when the US unemployment rates peaked at 10-percent, over twice what it is today.
Those who do have jobs aren’t always reaching their full earning potential. The latest report from the Federal Reserve Bank of New York shows recent grads aged 22–27 have an underemployment rate of 44 -percent and rising — compared to the national average which is holding steady at 33-percent for the last three decades.
The college grad who moves back home with mom and dad because they can’t afford rent on their serving job is also facing incredible student loan debts, as is the PhD candidate in early modern European history serving you at Starbucks. The youngest of Millennials are still struggling to pay back these loans — though the entire generation is weighted down by this debt, with nearly a third of all Millennials owing more than $30,000.
Their situation is a stark contrast to banks like Chase and Wells Fargo, two institutions protected in the bailouts and that seemingly benefited from the recession that crippled the Millennials. It’s little wonder that this cohort, roughly 80 million Americans, are resentful and distrustful of these financial organizations.
As the first generation to grow up alongside smartphones, they’re also more comfortable using these gadgets as financial devices. Nearly 95-percent of Millennials prefer using online banking regularly, with 43-percent citing it as the most valuable aspect of their banking experience. Another 23-percent list mobile banking as the most important. Nearly 33-percent of Millennials believe they won’t need a bank within the next five years.
In the dissonance that exists between traditional financial services and this skeptical generation, there lies an opportunity for fintech companies to create alternative banking solutions.An emerging group of fintech companies is doing just that, harnessing Millennials’ trust in technology to provide financial services as this generation ages and looks to invest its money.
Some fintech has taken on a collaborative approach. Startups like Chime and Simple are teaming up with existing, FDIC-insured banks to offer protected banking options on strictly mobile platforms.
Chime, with 750,000 accounts and $2.5 billion in transaction volume, is by far the most popular of fintech company disrupting traditional consumer-to-banking relationships. They offer online checking accounts (which they call spending accounts) with no overdraft, monthly, or foreign transaction fees. They also offer automatic savings accounts that generated $72 million in savings for its users last year.
These nouveau bank services are “built for the digital age” for people who are looking for faster, easier, and more convenient access to financial solutions. That includes the way they access assistance in the form of cash advances. Other fintech companies like MoneyKey offer an innovative substitute to traditional lending. Consumers can apply for, receive, and repay installment loans entirely online. These solutions are facilitated directly by the fintech company in question, with no interference from banks. In challenging the typical brick-and-mortar short term lender, these lenders provide alternative banking solutions that are simpler and more expedient for digital natives who prioritize innovation and automation.
Machine learning is at the basis of another popular online platform, Grifin. It creates customized portfolios automatically for its users by investing their spare change into companies that align with their interests. Adaptability is another huge feature appreciated by Millennials, and Grifin’s portfolios evolve alongside the user’s lifestyle — offering the same benefits of an S&P 500 fund but with all the convenience Millennials expect from an online platform.
While fintech companies like Chime, MoneyKey, and Grifin are the vanguards of emerging financial trends, traditional services are scrambling to keep up. In a bid to appeal to this demographic, banks are incorporating mobile apps, online platforms, and robo-advisors into their typical services.
Cumbersome and sluggish, these institutions move like the giants they are. Smaller fintech companies are nimble in comparison, ready to respond quickly to this generation’s evolving needs. And as Millennials continue to put a greater value on digital financial solutions, this fintech niche won’t be slowing down anytime soon.
What do you think? What does the future hold as Millennials opt for new fintech options? Share your opinion in the comments section.