The fintech fight for millennial money

As loyalty to high-street banks fades, startups are targeting younger customers, but who is winning the battle to bank the most cash-strapped generation?

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From their appetite for avocados to their dependence on Deliveroo, there are many inaccurate clichés about the lives of millennials, but the image of a generation beset by financial woes is, however, all too credible. A Resolution Foundation report this year found that average real hourly earnings for British under-30s fell by 13 per cent between 2007 and 2014, while Statista reports that 23 per cent of UK millennials don’t have any savings. ABA found that 71 per cent would “rather go to the dentist” than take advice from a bank. 

“Lifestyles have completely changed but the traditional ways of saving money haven’t,” says Victor Trokoudes, co-founder and CEO of the savings app Plum. “You’re still expected to figure out in your busy life on your own, how much to put aside and [how to] manage that.”

Enter fintech, carrying promises of simplified saving and easy investment. With less to spend and save, millennials are embracing products that employ everything from deep learning to artificial intelligence to smarten up their finances. 

Plum, for instance, is a chatbot that uses Facebook Messenger to interact with its users by linking to their bank account. The app analyses transactions to make automatic “savings” towards set goals, updating the user on how much they’re putting aside. Trokoudes launched the app with his co founder, Alex Michael, after realising that they didn’t have a “consistent” way of putting money aside. By using Facebook Messenger, he was able to target millennials like himself on a familiar platform. Millennials, he says, place great value on convenience. 

“Today, everything is changing; if you have Uber to call a taxi, it makes sense to have something like Plum, that does all the manual, boring calculation stuff for you.”

While Plum interacts with millennials on a separate platform, other savings apps, such as Squirrel, are going a step further. The Squirrel app creates a separate bank account and splits the user’s salary into savings, bills and a weekly allowance. For founder and CEO Mutaz Qubbaj, control and empowerment are the core themes driving the popularity of such apps. 

“In the past [personal finance] was more about just security and access, but now people have a different interaction with their money,” he says. “People have a lot more choice in terms of how they can go about managing that relationship.” 

Whether by contactless cards or online shopping, it’s never been easier or quicker to spend money but it’s also never been more difficult to save, Qubbaj argues. Young people in particular, he says, are being “pushed into buying things they do not need using money they do not have”. 

While millennials are notoriously sceptical of credit (just one in three US 18-29 year olds has a credit card, according to Bankrate) – the Swedish bank Klarna has found that convenience is also a powerful tool in encouraging spending. Klarna offers a range of payment options at almost 100,000 partnered merchants including Asos, Miss Selfridge, Schuh, Topshop and JD Sport. Most Significant is Klarna’s “pay later” option, which offers an immediate purchase with payment “sliced” into interest-free monthly instalments. In theory, a Klarna user can buy, try on, and return an item on Asos without paying for it using this option. Klarna is reportedly preparing to release a physical card later this year.

With over 60 million customers, Klarna is one of Europe’s largest startups and, unlike many of its fintech peers, turns a profit. But even a business based on encouraging millennials to spend online appears also to see their finances as needing security. In May, Klarna launched an app to encourage its users to “take control” of their personal finances. 

While Squirrel and Plum look to change the way millenials think about their income, spending and payments, other new platforms are investigating ways to encourage millennials to invest. According to the Foreign & Colonial Investment Trust, nearly eight million in the cohort have failed to start a long-term savings or investment plan despite two-thirds having ambitions to buy a house and have a family. Investing is perceived as risky, time-consuming and inaccessible among millennials, says Michelle Pearce-Burke, chief investment officer at Wealthify, which is backed by Aviva. Aimed at a “new wave of investors,” Wealthify’s digital platform looks to address these problems with its minimum investment of £1 and range of bespoke options. As with other “robo-investors”, users decide the level of risk and investment style and adjust their product accordingly. 

“People like myself want to do investment in a different way,” says Pearce-Burke, who co-founded Wealthify in her mid-20s. “They’re looking at smart apps that are well designed and easy to use, with intuitive service. They don’t necessarily want to go through the process of having face-to-face meetings and filling in reams of paperwork.” 

Wealthify is also conscious that the investment concerns of millennials are also different. This year, it announced the creation of five ethical investment plans focused on organisations “committed to having a positive impact on society”. Its own research found that 74 per cent of UK investors aged 18-34 said they would consider ethical investment portfolios, almost ten per cent more than the number of existing investors surveyed. 

Alternative investment products such as peer-to-peer lending – debt finance that allows individuals to borrow and lend money through an intermediary – also connect with this narrative. “It fits with how young people feel about the world, which is about a sharing economy, it is about connectivity,” says Mario Lupori, chief product officer of Ratesetter, a peer-to-peer lender that has created almost £3bn in loans since it was founded in 2010. While millennials are in the minority among Ratesetter’s investors, they make up 53.9 per cent of European peer-to-peer lenders, according to Robo.cash. 

With interest rates flat and savings accounts effectively losing money against inflation, millennials are investing differently. Lupori says they are increasingly likely to invest in P2P lending over a traditional stocks and shares ISA. Ratesetter simplifies the investment process by automatically allocating money to borrowers and offers returns of up to 5.7 per cent (at time of writing), but also the ability to exit early. However, “instant access” is not guaranteed and Ratesetter is not covered by the Financial Services Compensation Scheme.

Big bank failures 

Whether aimed at saving or investing, consumer fintech firms are united in their ability to address the financial needs of millennials in a way that big banks and financial service providers are struggling to tackle. 

The fact that Monzo and other “challenger banks”, such as Revolut and Starling are pitched as giving millennials control over their finances demonstrates that fintech firms have “identified something that resonates with this particular audience,” says Lupori. Not only are the big banks failing to properly identify the concerns millennials have for their money, they’re also lacking ideas to address it. The pace of innovation from fintech firms is troubling for the banks, who “despite their budget, still haven’t been able to compete,” he says. 

For Pearce-Burke, banks are “crowbarring” technology onto their existing systems as an “afterthought”, whereas millennials – a majority of whom communicate more on digital platforms than they do in person, according to LivePerson – are after something that feels like it has “been built in the 21st century”. 

Incumbents are also failing to resonate with the cohort on a communicative level. “People are fed up of being talked down to, like a parent-child relationship,” adds Pearce-Burke. “What some of the customers appreciate in our service – and I think it applies to other fintechs – is when you speak to them on a peer-to-peer level.”

Fintech firms position themselves as friends of their users (Plum’s slogan, for example, is “your money’s best friend”), employing data analysis to target the precise needs of their customers and target them with specific solutions. For Qubbaj, this is being facilitated by a broader transition towards “the bank of me”, where financial solutions are focused more on the particular needs of individuals as opposed to a one-size-fits-all product – the kind that big banks are currently driven by their scale to offer. “More custom financial technology providers [are] coming out and solving needs that wouldn’t have been able to register on the radar of some of the largest providers and banks out there,” he says. The incumbents have been warned.