Financial Technology: Evolution or Revolution?

Technology now plays an important role in the financial lives of consumers. Compared with adults over the age of 35, research suggests that millennials are 67% more likely to find new technology exciting and use it as much as they can for banking and other tasks. In this first of a four-part podcast series on technology and personal finance, experts from Wharton and PwC help educators and their students identify the intersection between the two. Read More

by Diana Drake


 
Welcome to the PwC-KWHS Podcast Series for High School Educators on Business & Financial Responsibility.

I’m Diana Drake, managing editor of Knowledge@Wharton High School, and today we are discussing the intersection of technology and finance. Technology is dramatically changing the way consumers handle personal financial transactions, everything from online banking and virtual wallets to bar code-based mobile payments and cryptocurrencies. We are here to explore what that changing landscape looks like, and what the technological shift means for the future of money management and financial capability. Also, how can educators prepare students to use these high-tech tools to manage their finances responsibly and successfully?

This is part one of our four-part technology and finance discussion with Wharton International Management professor Mauro Guillen and PwC Partner Elizabeth Diep, during which we focus on the broader landscape of the influence that technology is having on personal finance.

Mauro Guillen is director of the Wharton School’s Joseph H. Lauder Institute, a research and teaching program on management and international relations at the University of Pennsylvania, and he is also a professor of international management.

Elizabeth Diep is a partner with PwC’s Asset Management Practice in New York City. Liz is a strong supporter of the firm’s “Earn Your Future” program, a $190-million commitment to improve the financial competency of youth and educators.

Thank you both for agreeing to share your knowledge and insights about technology and personal finance. During our discussion, we will also be addressing questions sent in from high school educators.

Below is an edited transcript of the conversation.

Knowledge@Wharton High School: Let’s get started with the basics. Technology now plays an important role in the financial lives of consumers. But what exactly are we talking about when we refer to the influence that technology is having on personal finance? And would you call it an evolution or a revolution?

Elizabeth Diep: It’s a very good question. I think that we will all agree that technology has truly transformed our lives in countless ways over the last 20 to 30 years and I would say particularly when you think about smartphones and how that has progressed over the past decade or so. I think this is particularly true in the personal finance arena where technology has truly revolutionized our day-to-day activities — what we do and how we do it. The adoption of digital technology by everyone has raised expectations of what’s possible. I think that it has created this new normal and level of customer service and expectations that consumers now have.

Last year, PwC conducted a survey [where] we went out and surveyed global CEOs. [We] learned that 81% of CEOs believe that technology will truly transform their business over the next couple of years — not so much in the far future as was believed.

This digital revolution has created a new generation of consumers who want more. They want more access. They want more portability, more flexibility and this ability to really customize your products and services. … They are pretty comfortable moving between the physical and the virtual worlds, and I think that they’re prepared to disclose quite a lot of information about themselves in order to get what they want.

We have a growing number of companies that are investing in social media, mobile devices, cloud computing and big data. We’re doing that to engage with customers in new ways and gather insights for developing and marketing new offerings more effectively. This is the way of … the future.

[As to] whether this is a revolution or an evolution, I think that in reality it’s a little bit of both. The signposts for change are here. Many players are now innovating and are experimenting with new products, new delivery channels, new analytics and new data to really understand how to serve consumers better. The pace of change is moving actually pretty quickly. And [companies] that fail to shift gear truly are at risk of losing their customer base.

KWHS: What has this intersection meant for the financial services sector — everything from commercial banking to investment services?

Diep: The reality is that technology has changed everything and has become a strong enabler of increased services and, honestly, at a lower cost. … We’re now at a tipping point that suggests that this new digital age will drive huge shifts in industry value — anywhere from compressing revenues to redefining when and how these services will reach consumers.

An interesting technology trend that I’m sure you’re all seeing is that there are numerous mobile apps being developed every single day for smartphones. … This is enabling individuals to manage their finances on their own without the need, in many instances, of a banker. … What this means for banks and for financial advisors is that in today’s technological world if technology’s not up to par, you run the risk of losing clients. And many of our clients, both when you look at investment services as well as commercial banks, know that and so they look to keep up the pace of change. Technology is a big driver of this.

As this new millennial generation is beginning to dominate the market in terms of dollars, the financial services sector is targeting their efforts towards that generation. Commercial banking and investment services are making big bets on millennials. This is why we see so many personal finance tools geared towards this generation’s mindset — tools that help you with budgeting, planning and managing money right from the convenience of your smartphone.

A good example of this is the web-based platform that many of you probably know called Mint.com. Mint provides an easy-to-use platform where you can see …your budget, how much you’ve spent and how much of that is outside of your budget. It’s a cool, user-friendly design and it’s geared towards this millennial generation. … I think it will keep evolving to attract this new generation that is now the biggest user of this technology.

Compared with adults over the age of 35, the research truly suggests that millennials are 67% more likely to find new technology exciting and use it as much as they can.

KWHS: What do you see as some of the most important innovations in financial consumer-related technology in recent years — things from online banking to mobile wallets?

Mauro Guillen: All of these are started, of course, with a telephone — maybe 25 years ago or so — telephone-based banking. Then the Internet became the medium through which banks and other financial institutions would check customers and try to sell products and service them. But more recently … this has moved into the social media sphere and mobility has become the most important development — that we follow those apps.

At some point in the near future, we’re going to see the emergence of true digital currencies. That’s most likely the next wave of innovation.

What I would like to add is that different financial companies — financial advisors, banks, insurance companies — have approached this new world in different ways. For the most part, up until pretty much today, most of them have just added another channel of communication with the customer. What remains to be [seen] is not so much [as the incorporation of] new technologies, but rather to find a way of rethinking the entire approach to the customer, using these new technologies. So that banks and other types of financial companies don’t have like, 20 different channels, 20 different ways in which they can reach the customer and the customer can reach the company or the bank.

So, I think that’s where the action is today. It is a little bit on the technology front but it’s also on the app front, as Liz mentioned. It’s also, in terms of inventing a true digital currency and then the entire business model; not just the technology part of it but the entire business model of banks and financial institutions perhaps needs to change.

KWHS: We have some questions from high school teachers from around the country. LaTrisha Flax, an educator from Trego Community High School in Kansas, says that she still teaches high school students how to balance a checkbook. She wants to know how important and relevant this and other fundamental money management tools are in light of emerging technologies.

Diep: LaTrisha, thank you for doing that and please keep doing it. It’s an excellent question and one that I think we always think about — are we outdated? Should we be doing something different? To that I’ll say that technology has given us many tools that make our lives easier, and these are just that. They’re tools to enable us to transact with banks, to do things a little bit easier.

That cannot replace the base case that we need to know. We need to be educated consumers and what that means is that we need to know what’s happening behind the technology. The reality is that consumers, and especially I’m sure students, are more likely to have their smartphones on them than a checkbook. And so, in this very automated world of online bill payment and tons of mobile apps, I think that students still need to have a fundamental understanding of what it means to have a budget, how to balance a budget. That’s essentially what we were doing when we were balancing our checkbooks, right? It’s looking at what was the budget, how much are we over or under that budget? I think that that’s a … fundamental understanding of financial concepts that never gets outdated and that technology won’t replace.

Unfortunately, what the data shows is that American teens lag behind many of … their international peers when it comes to financial literacy … It has to be a priority. … These fundamental know-hows need to be implemented and taught a bit more to all. … Technology needs to be used as a tool, but the understanding needs to be there first.

KWHS: Christopher Brida, a teacher at Benjamin Franklin High School in Baltimore, Md., wonders about the potential of technology to inspire real change in financial transactions. He says that in education, technology is sometimes used just to digitize hard copies of things like textbooks, but doesn’t result in real change. So, do emerging ideas address how one’s finances can truly change with technology?

Diep: Absolutely. I think that, yes, there are many examples where we’re just shifting. And to Christopher’s question — were you shifting from doing things one way to another but not … really being innovative, I think that’s not the case when we think about the real change that financial transactions and technology [are] having on personal finance.

When we look at the past several years, advances in mobile and web-based technologies have fueled a lot of simple, innovative solutions that influence our behaviors. So, that means that technology is really, truly changing how we do things.

I’ll give you an example. A client of a bank or a wealth manager nowadays has technology at their fingertips for managing their finances where just a few years ago, only a financial analyst or specialist would have this information. What that has meant is that the role of financial advisors has turned more to be a supporting role rather than managing the functions, because customers are able to manage and monitor their own finances through these professional tools right out of their PCs or smart phones or their own tablets.

Clients are much more up-to-date now concerning their accounts, savings habits [and] assets and know a lot more about the opportunities and the threats in the marketplace. That makes them much more independent and self-determined.

Another development is that financial advisors will increasingly face competition with what is called in the industry as “robo advisors.” These are computer-based programs that create individual solutions based on algorithms. What this has meant for the industry is that advisors now change into being more [like] coaches or … psychological role models as opposed to being the ones leading the transactions because customers are much more educated in terms of … what they need from a financial plan.

These are real behaviors that we have seen and … these changes have come across because of the technological advances … in the personal finance arena.

Related Links

Conversation Starters

As we look at the intersection of technology and personal finance, Wharton professor Mauro Guillen suggests that “the entire business model of banks and financial institutions perhaps needs to change.” What does he mean by this? Why are such dramatic changes necessary as the tech-finance landscape takes shape?

Do you use technology to help manage and simplify your finances? If so, how? Do you feel that more traditional approaches to financial management – like using your pen to balance a checkbook – would help you better develop a fundamental understanding of financial concepts?

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