Financial dummies and fintech gurus (1 year recap)

The pace at which we moved our financial operations to a digital environment has been incredible. No matter what age group, city or demographic we belong to, there “probably is an app for that”. But what does this online adaptation say about our understanding of financial choices? These are the learnings from one year of writing about fintech and financial literacy.

Since the ATM big-bang in the 60’s, financial services have remained fairly conservative. That changed about a decade ago when digital finance providers started to unbundle and specialize in the various layers of the industry. This transformation led to two very important shifts: a change of consumer behavior and of products & services.

With new advantages in ease and choice brought by fintech providers, consumers readapted their engagement vis-à-vis financial tools. Demanding more transparency, instantaneity and tailored offerings.

At the same time, traditional financial institutions jumped on the transition bandwagon — albeit too late or insufficiently, some would say — to review the products and services they offer, and the way they do. Widening their customer base whilst trying to retain as many historical clients as possible.

What consequences did these developments have for the unbanked, vulnerable and gullible groups of society?

One year ago I embarked on a personal adventure of writing down thoughts and observations relating to finance, fintech development and financial literacy.

Fueled by several years of teaching classes on the representation of financial services providers since the 2008 crisis, I realized students were increasingly questioning the role, responsibility and added value of finance in our societies.

The thought process resulted in 11 short stories discussing the different customer segments and growing worries the financial industry tries to find answers for.

So what did we learn?

Understanding the intricacies of financial behavior and accounting for responsible decision-making should lay at the very core of any financial provider’s design process.

Help! I need somebody

Well, for starters, rather than merely rebranding existing products, financial providers should be driven by our usage of, and behavior around, financial services when bringing new products to market.

With an ever more digitalized financial services industry comes more potential market risks (i.e. online scams, fraud, fragmented access…) for which consumers or businesses are still ill-equipped.

This is mainly because people are emotional beings — meaning that all habits are a mix of learnings, experiences and exposure over a lifetime that merges into patterns.

We know that emotions can either enhance an individual’s ability to make rational financial choices or, inversely, lead to suboptimal decision-making.

Those who fail to understand the concept of spending, saving and interest compounding for example spend more on transaction fees, run up bigger debts, and incur higher interest rates on loans.

And the less transparent or tangible payments become, the more we consume. Such intangible finance — including online transactions or wearables — makes us treat a transaction with much less seriousness than if we actually had to take out our card or bank notes. Leading to serious overspending at best, or worse, overindebtedness.

Why is this important? Because in the absence of targeted programs, vulnerable groups — or just people with poor financial knowledge — are ill-prepared to face important decisions about their financial future.

If you think this is an issue in normal times, imagine what economic uncertainties, crises and downturns can do: they are multipliers of financial exclusion.

Therefore understanding the intricacies of financial behavior, accounting for responsible decision-making and ensuring to financially include as many customers as possible, should lay at the very core of any financial provider’s design process.

Taking that into account, what did we learn about how providers are shaping the future of finance?

Financial providers introduced a much-needed change in the way we access financial services and handle our financial operations.

I’ll tell you want I want (what I really, really want)

From contactless forms of payments, digital offerings to nomad banking and investing, fintech providers and incumbents have brought greater and fairer choice to consumers and businesses, so they can improve their decision making.

But most importantly, they (finally?) introduced a much-needed change in the way we access financial services and handle our financial operations.

Here are three take-aways of the changes shaping our financial lives:

• Distinct financial needs require tailored services — if there is one thing we learned, it’s that there isn’t one homo-economicus. The more our demographic changes and morphs into regional, ethnic or socio-economic subgroups, the more financial providers need to account for these differences in the delivery of their offerings. Financial players need to take into account the very specific financial needs of young pre-banked, elderly (g)old-diggers, empowered women, the vulnerable and financially excluded, and migrants or expats. Because people need services, but services that are relevant to them.
• Digital is not always better — it may sound counter-intuitive given the praise for fintechs and digitalization of financial services, but not all citizens are equally equipped when it comes to digital tools. We know that people of different generations and demographic backgrounds incorporate new technology into their lives at different rates. Financial players need to provide the necessary tools to prevent people who struggle understanding financial decisions to fall into a digital divide or are prone to fraudulent quick bucks. Meaning offering fair products with clear terms and education nudges to warrant for well-prepared financial citizens.
• Behavior is in constant motion — the pandemic has been an important example of how people massively changed and adapted their financial matters to new realities. People started taking part in the gig economy, switched to cashless proxies, accelerated their online consumption because of lack of physical alternatives, and ventured into alternative investments and digital currencies. As with any cycle, this one will soon also be replaced. Financial players need to constantly accompany the behavioral trends of society while ensuring sufficient security to mitigate new risks of the digital era. Allowing to foster safe financial markets that leaves as few as possible behind.

Policies must bridge the gap between access to and understanding of digital financial services.

Tomorrow, tomorrow (I love you, tomorrow)

It would be too easy if every industry wrinkle could be ironed out with only consumer insights and product innovation. To ensure a well-functioning and sustainable industry, help from future-proof policies is paramount.

With the growing cooperation between new and established providers, the missing pieces are up-to-date regulatory frameworks. Frameworks that protect users without necessarily hampering innovation.

In designing the currencies, payments and banking of tomorrow, policymakers must take down national obstacles where relevant, encourage digital alternatives to invest in important literacy and inclusion nudges, and remove structural barriers to the active participation of all demographics in the formal economy.

In order for policies to continue to act as a catalyst and important safety net, bridging the gap between access to and understanding of digital financial services.

Bonus track: let me, entertain you

Drafting and thinking about these articles also taught me some important lessons. As a bonus track, here are some useful learnings in case you might want to start to write.

1. Don’t just talk about it, do it. It’s easy to say you’ll keep a regular writing cadence, it is (incredibly) harder to actually do so. Don’t let a writer’s block or empty canvas stop you, rather adopt a structured approach. Keep a sticky note with themes, relevant articles and podcasts you find interesting. Then think about what it is you want to convey. Draft a structure, and you’re good to go.
2. It’s not about the reach, but about your own goal. I won’t lie; this set of articles has not gotten me millions of views, likes, shares or comments. That wasn’t the ambition, and shouldn’t be the motivation. It was about a personal goal of collecting thoughts on financial empowerment and financial technology. The reactions, encouragement and new connections that resulted, have been way more rewarding. Let quality and personal goals guide you, rather than ‘visibility’.
3. Remove the unnecessary (even if it hurts). When researching for an article, there are a thousand interesting things to say, articles to quote from or studies to reference to. And while they probably all deserve to be part of the narrative, it’s important to cut down. Narrowing it to what will make the story tick (even if that means stripping a funny comment or a fancy link) is necessary for a story to keep its focus.
4. Research your stuff. Sharing ideas and opinions are interesting, but highly biased. Sourced arguments make the story stronger and more believable (and backlinks help with referencing). Make sure to sufficiently look up your facts and link where possible to existing data. This helps taking into account all the great work that already exists on a certain topic.
5. Find a routine that works for you. It is so hard to remain structured and committed. Especially if writing stories is something you do on top of your daily obligations. Find a routine that suits you: this can be writing on Sunday nights, setting a monthly deadline, or spreading it out over a full week. Whatever works best for you, as long as you can stick to it.