One area of financial services that rarely makes the headlines is the personal finance sector, but new innovations, products, and demand from customers have transformed the space
It’s hardly surprising that, over the past three years, not much has been said about personal finance services in the media. The world has been entirely distracted by other matters – especially those involving big tech, big pharma, and big finance.
Digital transformation has enjoyed massive discussions in the context of banking and financial services. But the personal finance sector has been undergoing a transformation of its own.
Technology has created a new wave of customers: millennials and even younger customers are embracing a new era of financing, controlled via mobile technology and offering so much more in terms of products and services than ever before.
A time of change for personal finances
Anthony DiMarsico is the CEO of Banxe, a fully digital, Belgian banking fintech that enables users to monitor the impact of their purchases on the planet. He points out that many more young people now have an interest in investing – a space that was once reserved for the older and upper echelons of the banking industry. Part of this shift is down to the increased popularity of cryptocurrency.
He says: “Many people, particularly younger people, have become more interested in investing, especially investing in the world of digital currencies. Investments – and DIY investments, in particular – have become more prevalent since the first lockdown, possibly because it allowed people more time to research and pursue what were once fleeting interests.”
But the current economic climate has also had an impact on customer attitudes towards their finances. “Inflation and cost of living have continued to increase, reaching record levels, leading once more to people seeking additional revenue streams through digital currencies. Additionally, there is general distrust towards the traditional banking system, mainly due to the outdated banking environment and the inability to provide fast and reliable payment options,” says DiMarsico.
New trends in the personal finance space
Makala Green, founder, and director of Green Wealth Planning, says the demand to integrate services that enable consumers to “unlock” their financial potential and use both cash and crypto has driven huge disruption in the financial services marketplace.
“We are seeing a rise in digital investing, such as cryptocurrency, with a huge proportion of investors being Gen Z, which contradicts the traditional age demographic of investing,” she says.
“There has been a surge of businesses opting for contactless-only payments, meaning we are now experiencing the biggest reduction in cash. However, this has also caused the need for further cyber security; many companies need to provide end-to-end encryptions to keep consumers' data safe.”
She also points out that digital transformation has helped the marketplace develop business models offering better value to consumers, while making pleasing profits. New trends such as virtual meetings via Zoom, Teams, and Google Meets continue to hold their position as many people prefer the option of flexible working.
There is growing confidence in the use of technology, too. “People are more confident in using apps to arrange and manage their finances and are less reliant on high street banks to meet their financial needs, resulting in a given rise to many budgeting and money management apps. We are also likely to see plenty more newcomers in future due to consumer demand,” says Green.
DiMarsico agrees with Green and points to the 17,000 cryptocurrency ATMs in operation in America today. “It is clear the appetite for using crypto in the same way as cash is there, be it to pay a bill, buy a meal or use public transport. The merging of cash and crypto is a trend that will transition to becoming the future of payments,” he says. “Using a single access platform that bridges the gap between old and new payments brings an assortment of possibilities and allows users to learn how to buy and trade in crypto.”
Political turmoil has caused further disruption
“One of the most significant changes that have occurred in the personal finance space since the pandemic has been the accelerated digitisation of risk and compliance functions,” says Stuart Esslemont, global head of legal and compliance at ZEDRA
He comments on the fact that the industry is facing a very volatile and rapidly evolving environment (regulatory, political, social, and criminal). This is forcing companies to be much more agile and capable of dealing with threats, uncertainties, data requests, and data analysis, often with challenging deadlines.
Esslemont goes on to say that the recent sanctions introduced concerning Russia are changing the landscape. “Regulators and other overseeing bodies have expected businesses to be able to extract and provide data to them within very challenging timeframes. Situations such as these are time-critical; the potential consequences of inaction can be significant and further highlights that investment must be made into appropriate technologies,” he says.
In terms of a solution, Esslemont suggests businesses strive to be more data-driven and seek to avoid having to knit it together from multiple sources. “Deploying the correct digital tools, linked to the core systems, will reduce the need for manual interventions and decrease the risk of manual error.”
Digital Trust in the personal finance industry
Like all other areas of finserve, the personal finance sector has been thrown into digitisation because of the pandemic. Resistance has impacted full adoption, but, as Esslemont points out, “with new technologies and a shift away from the human touch, there is an element of trust and understanding of the tech that needs to occur before it is fully adopted”.
The cost of implementation, the lack of specialised talent, high demand for the new technologies, as well as partnering with the right provider in the digital ecosystem to implement the technology, is, he says, fundamental to success. “Firms regulated across multiple jurisdictions may face difficulties when mapping code of conduct handbooks, given possible diverging regulatory requirements.”
The future of personal finance
Given the massive shifts taking place, predicting how the personal finance industry will look in a decade seems an impossible task. However, there are certain changes that can be expected, says Green, who looks to customer-centricity as the defining element.
“Customers in the personal finance space demand more control of their financial future. Therefore, the future of personal finance and fintech is optimistic; it will provide more financial education and literacy, and be open to a much wider audience. Consumers can expect more simplicity and efficient tools to help people take control of their finances. I believe this will ultimately force large financial corporations to embrace the change, or they’ll be left behind.”
DiMarsico also believes the growth of the digital currency market will drive significant changes, both for consumers and businesses. He says the most likely scenario involves mainstream adoption globally. “Crypto will become so big that it will be inevitable and will become part of our daily life. Currently, it hasn't reached mass adoption; however, platforms like Banxe are here to change that.”
He adds, “Crypto will not replace traditional banking, but the synergy of crypto and fiat will become common in well-developed countries.”