One area of financial services that rarely makes the headlines is the personal finance sector, but new innovations, new products and customer demand have transformed the space.
It’s no surprise that over the past three years, personal finance services haven’t been talked about much in the media. The world has been entirely distracted by other issues, especially those involving big tech, big pharma and big finance.
Digital transformation has been widely discussed in the context of banking and financial services. But the personal finance industry has undergone its own transformation.
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 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 allows 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 banking. Part of this change is due to the growing popularity of cryptocurrency.
He says, “Many people, especially young people, have become more interested in investing, especially in the world of digital currencies. Investments – and DIY investments, in particular – have become more common since the first lockdown, perhaps because it gave people more time to research and pursue what were once ephemeral interests.
But the current economic climate has also had an impact on customers’ attitude towards their finances. “Inflation and the cost of living have continued to rise to record highs, once again prompting people to seek additional sources of income through digital currencies. Additionally, there is a general distrust of the traditional banking system, mainly due to the outdated banking environment and the inability to provide fast and reliable payment options,” says DiMarsico.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 personal finance
Makala Green, Founder and Director of Green Wealth Planning, says the demand for integrating services that allow consumers to “unlock” their financial potential and use both cash and crypto has caused huge disruption in the financial services market.
“We are seeing an increase in digital investing, like cryptocurrency, with a huge proportion of Gen Z investors, which contradicts the traditional age demographic of investing,” she says.
“There has been an increase in the number of businesses opting for contactless payments only, which means we are currently experiencing the biggest reduction in cash. However, this has also led to the need for additional cybersecurity; many companies need to provide end-to-end encryption to keep consumer data secure.”
She also points out that digital transformation has helped the market to develop business models that provide better value to consumers, while making pleasing profits. New trends such as virtual meetings via Zoom, Teams and Google Meets continue to take hold as many people prefer the option of flexible working.
There is also growing confidence in the use of technology. “People are more confident in using apps to organize and manage their finances and are less reliant on high street banks to meet their financial needs, leading to an increase in many budgeting and money management apps We’re also likely to see a lot more newcomers in the future due to consumer demand,” says Green.
DiMarsico agrees with Green and points to the 17,000 cryptocurrency ATMs in operation in America today. “Clearly the appetite for using crypto is there the same way cash is there, whether it’s to pay a bill, buy a meal, or use public transportation. The merging of cash and crypto is a trend that will become the future of payments,” he says. “Using a single access platform that bridges the gap between old and new payments provides an assortment of possibilities and enables users to learn how to buy and trade crypto.”
Political unrest has caused further disruption
“One of the most significant changes that has happened in personal finance since the pandemic has been the accelerated digitization of risk and compliance functions,” says Stuart Esslemont, global head of legal and compliance at ZEDRA.
He comments that the industry faces a very volatile and rapidly changing environment (regulatory, political, social and criminal). This forces companies to be much more agile and able to deal with threats, uncertainties, data demands and data analysis, often with difficult deadlines.
Esslemont goes on to say that the recent sanctions introduced against Russia are changing the landscape. “Regulators and other oversight bodies expected companies to be able to extract and deliver data to them in very difficult time frames. Situations like these are urgent; the potential consequences of inaction can be significant and further underscores the need to invest in appropriate technologies,” he says.
In terms of a solution, Esslemont suggests companies strive to be more data-driven and seek to avoid having to assemble it from multiple sources. “Deploying the right digital tools, linked to central systems, will reduce the need for manual interventions and decrease the risk of manual error.”
Digital trust in the personal finance sector
Like every other area of finserve, the personal finance industry has been plunged into digitalization due to the pandemic. Resistance has impacted full adoption, but, as Esslemont points out, “with new technologies and the move away from the human touch, there is an element of trust and understanding of technology that needs to happen. before it is fully adopted”.
The cost of implementation, the lack of specialized talent, the high demand for new technologies, as well as partnering with the right provider in the digital ecosystem to implement the technology, are, he says, critical to success. “Companies regulated in multiple jurisdictions may encounter challenges when mapping code of conduct manuals, given possible differing regulatory requirements.”
The future of personal finance
With the massive changes underway, predicting what the personal finance industry will look like a decade from now seems like an impossible task. However, some changes can be expected, says Green, who sees customer focus as the defining element.
“Personal finance customers are demanding more control over their financial future. Therefore, the future of personal finance and fintech is optimistic; it will provide more financial education and literacy, and will be open to a much wider audience. Consumers can expect more simplicity and powerful tools to help people take control of their finances. I think this will eventually force the big financial companies to embrace the change, otherwise they will be left behind.
DiMarsico also believes that the growth of the digital currency market will bring about significant changes for both consumers and businesses. He says the most likely scenario involves widespread adoption globally. “Crypto will become so big that it will be inevitable and part of our daily lives. Currently, it has not 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 mainstream in well-developed countries.”