Wealth Tech & the Evolution of Behavior
Today’s story is part 2 of a wealth tech mini-series. ICYMI read part 1 here.
What’s your first fintech memory?
Can you pinpoint when you realized that financial technology changed how you behave and interact with the world?
When I moved to New York City five years ago, it felt like a badge of honor to head into my neighborhood subway station to retrieve my first MetroCard.
Soon enough, like most transplants, commuting brought a moment of stress that rushed through my body as I frantically searched my purse for my thinner-than-paper MetroCard so I could catch the train.
While that stressful feeling was just a tiny fraction of my day, it compounded. And the ripple effect of missing a train means being late for whatever next opportunity awaits.
It wouldn’t be until 2020 that all buses and subway stations, a part of the country’s most extensive transit system, would be outfitted with Apple Pay.
Thanks to fintech, that tiny sliver of stress has now been lifted off my shoulders. Now, when commuting, I feel like this tech-savvy badass who doesn’t even look down when I tap my iPhone and use my digital wallet to strut through the MTA entrance while I make it to my destination on time.
All this to say, consumer expectations and experiences are changing faster than ever.
A new, more agile generation of investors is seeking holistic advice that humanizes money management by acknowledging the behavioral dimensions of their lives — feelings of belonging, personal values, mental health, and physiological needs — to achieve financial actualization.
The when, where, and how consumers engage with fintech tools have evolved dramatically.
And wealth tech is the subsector of fintech ripe to lead the innovation.
But to understand how wealth tech fits into the evolution of financial advice, we have to look at the past.
The First Financial Technology
When the first ATM hit the scene in 1969, the way we experience money changed.
Before the ATM, we could only interact with our money during banking hours. So, the ATM revolutionized the “when” behind money experiences.
Accessing money 24/7 was a significant change in expectations, and fintech was right there to push the next expectation.
In 1995 Wells Fargo launched the first Internet banking site, revolutionizing the “where” behind money experiences.
Consumers can access their finances anywhere with WiFi and a PC.
Then, a company called PayPal launched in 1999, changing the “how” of money experiences.
PayPal revolutionized how we pay for goods and services and how we pay our friends back.
And the company keeps innovating. PayPal is changing the “how” on everything else, like how we give to our favorite charities or interact with and spend our rewards points.
If you go on PayPal, they’re paying a higher amount for their savings account than most banks. So they’re changing how we save, spend, and shop. PayPal is proving one traditional financial service practice at a time that fintech can deliver all these features through a single app.
Here’s the thing about innovation: Many copycats pop up. While that’s great for providing more access to financial services via fintech, it also means consumers are saturated.
In 2020, consumers downloaded 4.6 billion finance apps.
In 2021, 573 million downloads in the United States, and during that same period, we spent a total of 16 billion hours on finance apps.
That’s the equivalent of 1.8 million years of human brain power spent on finance apps.
Why is this happening? Fintech apps focus on engagement and getting you to spend time there, and they’re doing it incorrectly – like sharing lousy advice.
Take Venmo as another example. Venmo has you spending time inducing FOMO, so you can scroll through to see which friends of yours are hanging out with other friends who didn’t invite you.
Consumers are wising up to the pervasive tech that has induced poor behavior. So:
- We’re going to expect more
- We’re going to expect better
- We’re going to expect the what to change, and we’re going to expect the whom to change.
What does that mean exactly?
Well, we’ve got this mess of fintech apps we’re supposed to trust by linking our accounts, taking loans, BNPL, and investing in fractional shares of things, which are great for access.
But these tools need to get to the foundation of helping build wealth.
As our financial habits evolve, it’s clear that all generations are taking a more proactive approach to their money, striving to make intelligent decisions that will benefit them in the long term.
No longer are we content with just living for short-term gratification (get-rich-quick schemes are so 2019) – we’re thinking ahead!
Once considered asset managers meant to make portfolios grow at whatever cost, financial advisors have evolved into behavioral coaches who improve their client’s quality of life.
So consumers are about to ask for better tools from companies. That’s where wealth tech comes in. And investors poured $8.8 billion into the fintech subsector in 2022 and $15 billion in 2021.
The companies you trust and spend the most time on, like Apple, Amazon, and Visa, will start embedding traditional financial services in a way they haven’t done before.
Expect companies like Discover to launch investments and financial planning.
American Express is already on its way. In addition, the finserv funded a startup BodesWell to build a financial plan and deliver it through their app.
With the right mix of behavioral and embedded finance, there’s a significant opportunity to turn access into meaningful wealth building.
The Secret Weapon
Behavioral finance incorporates and accounts for the messiness of the human experience.
It’s listening for what’s not being said. It’s about getting below the surface and the why behind the actions or behavior.
So what are the mistakes users make that behavioral finance x wealth tech can help solve?
- Tunnel vision: We, as humans, tend to get fixated on an idea or plan, and we absolutely cannot deviate from it.
- Overconfidence bias: Believing that we are not prone to biases and somehow above having biases.
- Describing Happiness: People need to improve at explaining what they want and have limited access to what can make them happy.
Values sit beneath goals. If people have better access to what they value, those values give birth to the rise of specific purposes.
Especially regarding how finance correlates with our identities and how fintech and financial planning come together to address human identity crises.
It also requires wealthy tech companies to have a massive fixation on empathy.
Humans make major financial decisions — like accepting a new job or buying a house — with our hearts as much as our heads.
Money is one of the most emotionally charged topics you can discuss. It’s crazy that we’ve lived in this world where money is so taboo that we hide truth’s from each other (like literally our families or loved ones).
Financial freedom is actually about freeing your mind. It’s the first step to helping users get to financial independence. It understands that there’s an economy out there, and you have a relationship with it, but it doesn’t run your life.
In the past, consumers typically thought that the economy was a “boss” that was the deciding factor in the moves we make for our purposes. But the tax system and rising interest rates should not control your values and mentality.
A lot of it starts with a need for more financial education. But unfortunately, financial planning and advice have typically been reserved for the ultra-wealthy, creating an industry focused on making money and leaving education and humanity out the door.
Technology is bringing humanity to financial planning.
That’s because it’s so much more important to empower people with financial knowledge and how money (wrongly) defines identity in cultural norms. Plus, we live in an era where 71% of consumers expect companies to deliver personalized interactions.
Our society is evolving. With technology, we can help people with financial choices and relieve stress by assisting them in making sense of all the chaos we live in.
To start, we need to leverage wealth tech to help people reach higher levels of self-actualization.
Next week, we’ll understand how wealth tech companies are working to achieve just that.