The rise of fintech was fueled by the creation of new technologies to propel the potential of banking and allow financial institutions to reach more customers outside of the traditional banking legacy systems. The fintech industry has customised the mundane finance experience for millions of people who can now pay a bill, cash a check, transfer money and conduct all financial transactions from the comfort of home or anywhere else. This digital transformation led to more expansive product offerings, including buying a home, saving for college, managing retirement accounts and wealth management.
Digital access for wealth management (wealth tech) has allowed more people to enter this market, creating new and viable wealth-building opportunities even with modest disposable income to invest. That said, not all platforms are created equal. The ones focused on democratising access and education will climb to the top as more people learn more about this segment of personal finance management.
According to a McKinsey report, two billion people in the world live outside of our financial system. In the United States, over 70 million people live outside the financial system. Wall Street experience teaches us that engaging in banking and financial markets involves a lot of gatekeeping. It’s set up like a Monopoly, sending the average American back to the starting line quickly and frequently. You need access to many things – a bank account, checking account, and credit history, among others. Getting credit without a bank account is challenging. There are catch-22s every step of the way. Luckily, the digital transformation within the finance sector is starting to shift this paradigm.
Planning and managing personal finances can be time-consuming and requires a certain level of financial literacy, especially in retirement or wealth management. Before, wealth management was designed for those with specific, pre-existing access to wealth, inheritance or trust funds, for instance. The average American never considered the need for wealth management products when just trying to make ends meet.
The good news is that wealth tech is helping bridge this gap. Funding for wealth tech set records in 2021. According to a CBInsights wealth tech report, funding to the sector grew 156% year-over-year, driven by 35 mega-rounds that accounted for 71% of funding for the year. Much of the buzz surrounding fintech focuses on the potential of new technologies to transform ways of doing business and allow companies to keep their cost per customer low. Wealth tech can streamline a person’s engagement with money, eliminating some of the catch-22s that have held people back. However, less is said about how these innovations can be used to break down barriers, making financial services available to more people.
Fintech is built to meet you where you are
Like all digitisation across nearly all sectors, fintech targets customers where they live. Customers are now on their phones, feeding the digital habit they’re used to and utilising universal access to manage nearly every aspect of their lives, including personal finance. The digital banking transformation allows users to engage in personal finance education and at a level of understanding they’re comfortable with while skipping past traditional customer service inquiries and lengthy processes.
Great apps are familiar and comfortable to more users than stock trading tickers, online investment platforms or even access to in-person meetings with financial advisors. Overall, the digital user experience is designed for the everyday user, and it is focused on all end users versus just ones with wealth.
Fintech opens the door to wealth building
The 10 percent investing rule is an adage for wealth managers and customers to help navigate how and how much to invest. The 10 per cent once lost to fees and missteps is now 10 per cent you must invest. Now you’re thinking about wealth, where do you begin? Look at the state of the market and monitor inflation and volatility. Best practices in a market like today’s include a balanced, diversified portfolio. Real estate is one of the only investments that can outpace the rate of inflation. Again, this is an area where the digital transformation has placed very useful and powerful information into the hands of every person engaged in personal finance management.
Fintech addresses access in a tried-and-true sector: real estate
Real estate is one sector with a real need for true wealth accessibility. While 90% of millionaires have earned their wealth by investing in real estate, the combination of inflation and low inventory creates a perfect storm, preventing first-time homebuyers from entering the market, let alone becoming real estate investors. Platforms like Elevate.Money are working to conquer this challenge. With an entry investment of only $100, the platform targets those investors who have gained autonomy in investment decisions but may not otherwise have access to real estate investments. The company offers investors access to its private REIT, providing the opportunity to invest in established properties with nationally-recognised tenants and longer-term leases, unlike the risk of investing in property development that hasn’t broken ground. This creates a proving ground for new investors to watch real estate’s long-term dividend possibilities.
Many people may not have had access before due to a lack of generational wealth or the current state of the market, but technology has opened the door for many. With all this education and all customers in an equal access space, the premise of wealth-building has changed. What does the future hold? More people are thinking differently about money and there are more investment pathways than ever; more money to be invested; and more security for those previously left out of the wealth conversation. It is an exciting time to think smart about money and how each person has the power to invest in the future they want.
About the author: Sachin Jhangiani is the Co-Founder and CMO, Elevate.Money