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 Wharton MBA who led 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.
- 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.
- 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.
- 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.”
- 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. For instance, you can now 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.
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.
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.
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.
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.
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.
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.
“There’s an app for that.” The phrase, trademarked by Apple 12 years ago, epitomizes the conveniences we enjoy from modern technology.
Today, most of us have more control over our finances as fintech megatrends have radically transformed our relationship with money. We readily embrace a dazzling future promised by all kinds of fintech, such as cryptocurrency and blockchain – and all at the touch of our fingertips.
But the question is: Who’s being left out?
Although incorporating trendy technology into our daily routines seems natural and almost intuitive for millennials and Generation X, it remains alien to many seniors. A recent U.S. Federal Reserve study shows that only 18 percent of seniors, against 67 percent of millennials, currently use mobile banking services.
Given the valuable financial assets seniors possess, this isn’t a group banks can afford to overlook. Fortunately, banks can be simultaneously innovative with mobile technology and inclusive of seniors.
Let me tell you how.
One significant way is to adjust the interface of mobile banking apps to accommodate impairments many elderly people face, such as weaker vision. This means bigger font sizes, a more concise layout and a cleaner text style.
Furthermore, the interface should not be packed with all kinds of features that are only remotely applicable to the lives of seniors. These features can be distracting and even distressing. For instance, elements concerning the stock market, futures, commodities, discounts and amenities of little use to seniors can be avoided. Let the customer decide which three of four features they most need.
Banks should embed easy-to-use communication features such as click-to-call buttons. To save the hassle of physically visiting a branch, banks must provide familiar and comfortable ways for seniors to communicate with customer service when necessary. Many seniors want a real person to guide them rather than text or voice prompts.
A further embedded feature could allow a senior to call a loved one with the simple push of a button, like a saved telephone number on the app, when they feel unsure about a payment or transfer. As seniors are more vulnerable to scams, this feature might deter many of those crimes.
Generally, banks should avoid making drastic changes to their mobile app designs that might confuse or frustrate senior users.
Are the above suggestions to bolster user engagement among seniors feasible? I think so. Five years ago in Shenzhen, shortly before I moved to the United States, I was tasked with suggesting user-friendly mobile elements for those 60 and over during a student program at one of the biggest banks in China.
I was asked to wear an “old age simulation suit” as part of the program to familiarize myself with the physical impairments facing many elderly folks.
I wore weights on both ankles, pads around my elbows, heavy weights around my chest, goggles that impaired my sight, and headphones that canceled out noise. It was a scary experience: walking was difficult, my movements were restricted, breathing became nearly impossible, my vision was blurred, and my hearing was no longer sharp. I felt very much alone and vulnerable.
After that experience, I could empathize more with seniors during my subsequent interviews and home visits.
At the end of the program, I submitted a feedback document that included the suggestions above to my neighborhood branch office. I’m proud to say that all of my suggestions were adopted in the bank’s mobile app. I believe these changes have worldwide applicability.
A year after my feedback, the bank rolled out its first version of the “Large Print” senior-friendly interface, which included the advice from my feedback. Later the bank continued to develop new versions that were increasingly simple, straightforward and senior-friendly.
While some may rush to conclude that the older generation is generally slower to accept new technology, I learned that after two months of conversations with seniors, the banking industry is also to blame for the infrequent use of mobile services by this demographic: The industry’s inability to design apps that respond to the needs of seniors has contributed to the lack of use.
As fintech continues to play a significant role in our daily lives, banks and other fintech companies must keep evolving to ensure that their apps are user-friendly and designed to the needs of various demographics, including seniors.
Sure, “There’s an app for that.” But in today’s world of frenetic innovation, let’s ensure there’s also “an app for all.”