At a recent FinTech event, an audience member asked the panel what financial services would look like in the future. A panellist responded:
“What would you as a consumer want it to look like?”
“I don’t know”
This awkward exchange illustrates a core tension at the heart of Financial innovation. Consumers really don’t care what we do or how we do it as an industry, they are only interested in the outcomes we can deliver. Everyone wants financial security, we all want to retire comfortably, these are universal and don’t vary with age, income or geography.
Despite this universal aspiration, we don’t see universal action to achieve these aims. In many respects, we spend a lot of time as humans doing things that are actual contra to achieving these aims. We spend too much relative to our income, we don’t maximise our savings income, we don’t plan and budget, we don’t invest or if we do we do it in a way that is sub-optimal.
It’s similar to the health and fitness market. No one wants to be unfit or unhealthy and almost everyone wishes that they could change and improve some aspect of their physical being. Some people are really good at applying themselves to achieving these aims. They don’t smoke or drink, they eat well and are active. Some make it their life’s work to be as fit as possible. For most of us though, we just think and worry about it whilst eating a bag of chips and watching Netflix, putting it all off until tomorrow, next week whatever.
The problem is not lack of knowledge or experience its one of motivation. The level of motivation to achieve the outcome is simply not enough to overcome the barrier of inertia.
In some respects, financial fitness has a higher mountain to climb than physical fitness. Go to the gym every day for a month and you will notice the difference. Maximise your deposit interest and dollar cost average your investments every day for a month and it’s not going to have any significant impact on your life. The power and the glory of compound growth only work over decades — and it works both ways positively and negatively.
However, there is some positive news here.
Whilst it’s not possible to hire someone to be fit for you, even a fitness trainer can only help guide and motivate you, they cannot do it for you. It’s not possible to hire someone to carry your disease and impact of a lifetime of poor health choices, it’s all on you.
It is, however, possible to have your money managed for you. In the past, this was limited to high net worth individuals who could access private banking. They certainly pay for that luxury as well. For the mass affluent however its been very much DIY.
You might think that the wave of personal financial management apps has been helping this process (for a full list see this link) and to an extent this is correct. However, the role of such apps are primarily to make you more aware of your money the need to manage it, the are informational only.
They do not of themselves help you do it that still requires work. And people hate to do work especially when its hard, complex and provides limited immediate payoff — all of which are true of money management.
So the best solution here is one in which the hard work is done for you. It harnesses the desire to be financially fit but takes away the work to achieve it. Unlike physical fitness this can be done for you and the way to do it cost-effectively is to have technology do the heavy lifting for you.
Why has it taken so long for such services to come to market?
Shouldn’t banks have made this happen years ago? The technology has been available on a mass basis for at least a decade. The problem with incumbent banks is that it’s not in their interest for money to flow back to consumers. Your maximising returns from your own money is their margin disappearing. Their economic interests and those of their customers are not shared unless you happen to be working for one or heavily invested in them.
Money automation is going to have to come from new companies that have an economic interest in changing the market not maintaining it as it is. This is already happening — Wealthfront and Betterment brought lower costs to Robo investing. Acorns brought auto investing — rounding up debit card transactions. Companies like Digit and Maxmyinterest are helping optimise for deposit interest and there are many more.
The next few years will see the rise of a far greater level of integration and automation in financial services enabling people to automatically maximise the returns on their money. The work effort that existed for so long as a barrier between people and financial fitness is going to disappear and good riddance to it.