Fintech Megatrends Transform Our Relationship with Money

by Diana Drake

The Wharton Global Youth Program’s Future of the Business World online course asks high school students to think deeply about how the landscape of business will change over the next 10 years.

When we recently posed this question to teens around the world, many responded with observations about technology, machine learning, artificial intelligence and pressing social and environmental issues. A few mentioned apps like Venmo and PayPal as fundamentally changing the way we interact with money.

Herein lies our jumping-off point: the intersection between finance and technology, which is so much more than an app on your phone – in fact, it involves all those above influences that are transforming the business landscape. It is fintech, and it is the future of business.

We recently scored Zoom time with someone at the forefront of fintech, both as the founder of a startup and as a first-year Wharton MBA who is the incoming president of the Wharton Fintech Club. Nathan Soffio has spent 10 years in product engineering at startup tech companies, some of them focused on finance, and is considered a fintech guru – in other words, he knows a whole lot about how the intersection of finance and technology is impacting your lives.

So, we asked him just that: What are some of the essential ways that the fintech industry is changing personal finance (appropriate given that April is Financial Literacy Month in the U.S.) and influencing the future business landscape?

First, he clarifies, fintech isn’t really a standalone industry: “Fintech plugs into almost everything we do in the digital age, which is why it’s so crucial that it continues to develop with transparency and equity,” says Soffio, whose startup business Proofetch is focused on financial inclusion and helping people access core checking and saving accounts even though they haven’t previously been part of the traditional banking system. “Checkout online? Fintech. Split a Venmo payment? Fintech. Applying for a loan? Fintech. Fintech is not just the apps you use to pay and get paid, but anything that involves making that money work for you, making sure that money is secure wherever it goes, and making sure you can get smarter and healthier with your money over time.”

With that, Soffio identifies four macrotrends in fintech. Fasten your money belts, because these digital developments will have you interacting with money in new and provocative ways, while also inspiring innovation and transformation in business.

  1. Embedded banking. Embedded banking describes banking-like services that live in all sorts of other apps that aren’t actual banks. Yes, Venmo is one example. Soffio describes it like this: You have the apps on top delivering a slick user experience, then you have a middle layer of companies that do banking as a service and allow you to manage checking, savings and sharing payments without interacting with an actual bank, and then the bottom layer beneath that is made up of traditional chartered banks. “Financial apps will continue to get more interesting and cooler and slicker and more functional as they get further and further away from any kind of underlying bank. This is embedded finance,” notes Soffio.
  1. Financial health and wellness. Apps like Mint and Credit Karma have been on the rise in the past five years, aggregating data from consumers that helps them make smarter financial decisions based on their lifestyle and past choices. This trend is gaining momentum, suggests Soffio. “The data is going to be easier to use, and more financial institutions and apps living close to the consumers will be throwing off useful data that financial health and wellness apps can use more effectively,” he notes. “Financial-service providers will be put in a position where regulators force them to publish out their data in ways that make it easily analyzable. Apps themselves will get better at providing suggestions and recommendations about what people should do.” The flip side? Not all of that advice will be sound. That’s why, cautions Soffio, it’s still important to learn foundations of money management in school and in your community so you can distinguish between the good and bad apps. Technology is not a replacement for strong financial skills.
  1. Getting paid. Soffio anticipates innovation around payroll, meaning that the salary you earn will be paid to you with more flexibility, rather than the traditional paycheck every two weeks or once a month. “I think it’s interesting how so many people are freelancers and creators and part of the gig economy these days,” says Soffio. “There will be a very interesting growth of flexible payment apps or flexible payment options as the plumbing between consumers and banks gets much smarter by all those companies that live in the middle.”
  1. Cryptocurrency and blockchain. Soffio calls this the “weirdest” fintech megatrend because it has so much uncertainty — and yet it makes his top 4 because it is everywhere. As of last week, for instance, you can buy a Tesla with bitcoin (digital money); however, Soffio predicts, “I don’t see being able to buy a sandwich with a bitcoin anytime soon.” And then, of course, there are NFTs or nun-fungible tokens, which are unique tokens (with value) on the blockchain. Stay tuned for a separate story exploring NFTs, which are both cool and somewhat complicated. For now, though, Soffio says blockchain technology, a system of recording information in a way that makes it nearly impossible to change, is going to inspire better financial record-keeping. As for actual cryptocurrency, he is taken with the concept of Central Bank Digital Currency. With this, central banks can push digital money into the economy without affecting the inflation rates or devaluing the currency – and potentially help underserved people who are not part of the traditional banking system to access alternative sources of finance.

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Conversation Starters

How has your relationship with financial technology changed during the pandemic? Do you rely more heavily on apps to manage your money? Which one is your favorite and why?

Which of the four fintech megatrends resonates most with you and why?

If you could tackle a problem related to finance, what would it be? Learn more about that particular challenge and then figure out four ways you might become part of the solution.

5 comments on “Fintech Megatrends Transform Our Relationship with Money

  1. Trend 2 “Financial health and wellness” is going to make the biggest step up impact on a community before other underlying services like blockchain and embedded banking. I think in order to get people into that trend they first need to be reinforced of the importance of personal finance. I think the pandemic sped up that trend for 2 reasons. 1; people had money problems so they needed money solutions 2; the online creator economy drove that content out there. Peer to peer sources like YouTube (Stephan, Jikh, FiRE channels) showed many people that they can do much more with their dollar.

    My thoughts, great article.

    – Rylan

  2. I certainly agree with you, Rylan. Throughout the course of the pandemic, people stuck at home became more aware than ever, how much they can truly grow their money. On top of that, most families were able to immediately cut out so many costs that would otherwise take up their much of their monthly income, allowing them to began redirecting all that money towards savings accounts or brokerage accounts for investments. This huge trend caused more families to now rely on more “financial health and wellness” apps to better budget their money. The time for education and growth as the world was quite literally put on pause gave people an opportunity to utilize fintech apps and further educate themselves on passively growing their income. I also believe access to such apps and education will soon be the fundamental force pulling lower income or previously uneducated groups out of poverty and into the world of financial independence.

    – Sahithy

  3. To add to Mr. Scoffio’s fourth (and most weird) fintech macrotrend, the introduction of decentralized finance will change the banking system as we know it. A majority of cryptocurrencies are exchanged by various means on blockchain networks known as “DeFi”, or decentralized finance. Interestingly, DeFi networks do not involve an intermediary party, such as a bank, to execute a financial transaction. Excluding intermediaries will enable everyday individuals to immerse themselves in a more transparent, smooth-running, and cost-effective system of exchange. For example, loaning will become far more widespread, with increased access provided to the underserved. Along with more access, better opportunity for all, regardless of financial status, will follow in pursuit. Ultimately, this current era is an exciting and promising time for the fintech industry and all individuals, and a full-fledged shift to a decentralized financial system could be just on the horizon.

  4. Hi Ethan M.,
    I agree with your view that blockchain technologies will reinvent the banking industry. As you say there are many benefits to banking in a decentralized way by using the blockchain.

    One concern I have is the extreme volatility in cryptocurrencies. One week bitcoin is at $60,000 and the next it is approaching $30,000. It is very hard to find use out of these cryptocurrencies due to their unpredictability. One reason why Tesla may have stopped accepting bitcoin to purchases Teslas (in addition to the environmental concerns) is that it is currently not efficient. There are several fees and taxes involved in bitcoin transactions that hurt a companies bottom line profits. Also, accepting bitcoin makes the company’s financials unpredictable and very volatile. What public company would want to tie its earnings to such a volatile and unpredictable asset like bitcoin. Tesla may accept one $50,000 bitcoin to purchase a model Y, but by the time their earnings are reported that bitcoin could be worth $10,000. This could result in Tesla loosing a tremendous amount of money. As it is, Tesla already lost money on their bitcoin investment.

    In the future, I hope to see a more stable cryptocurrency that can more efficiently reinvent banking and transactions with the benefits you listed in your comment. One solution to this issue could be the use of stable coins which are cryptocurrencies that are tied to fiat money such as the US dollar.

    Sincerely,
    Ilan Puterman

  5. In an increasingly decentralized world where microtransactions of various currencies are made effortlessly between parties, consumers are inevitably torn between two options, each conveying their own flaws. Firstly, customers can choose to exchange through established notes like the dollar which has traditionally been deemed as the “safer alternative”. However, with inflation at a 40 year high of 8.9% coupled with unpredictable changes in monetary policy, it is easy to see how consumers find exchanging a currency that is continuously declining in value as being uneasy. The alternative to the dollar are through cryptocurrencies which consumers find increasingly hard to swallow as cryptocurrencies backed with no intrinsic or tangible value aside from hype (isn’t tangible), is the pioneering force of the volatile crypto buying/selling frenzy which simply isn’t feasible. These problems present a massive opportunity for the FinTech industry to capitalize on as the online transaction/banking market is one of the fastest growing industries in the world with a 20.3% compound annual growth rate according to Digital Journal. There is no doubt that in a rapidly changing market, consumers prioritize tangible assets, dismiss viral sensations, and are inclined to yearly appreciation. Therefore, the exchange of stocks as a form of microtransactions is presenting a real opportunity. Unlike other forms of payment, large diverse market cap stock etfs like the SPY 500 are relatively stable and appreciate in value. Additionally, stocks, backed by revenue generating companies, is a tangible asset less vulnerable to market hype or dramatic changes in investor behavior. This idea to use stocks as a method of daily transactions is relatively untouched in the market giving companies who adopt this technology an edge over the competition in the FinTech industry. This innovation for FinTech will revolutionize the online payment industry, something key to a company’s inevitable future success given that the technology for the idea already exists.

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