Our Fintech Future
How technological advances over the next 10 years may radically change how we invest, save and spend
Editor’s note: This is the first of two articles marking the 10th anniversary of financial technology, or fintech, and discussing innovations that may change how we interact with money. This article covers the automation of routine services and the rise of digital financial assistants employing artificial intelligence.
In many ways, 2022 marks the 10th anniversary of the fintech phenomenon. While companies such as E*TRADE, Rocket Mortgage and TurboTax all began to disrupt the established financial services market well before 2012, that year was when fintech emerged as a sustained movement markedly changing how most consumers manage their money.
A bulge of startups founded soon after the 2008 financial crisis started to go live, venture capitalists began investing en masse and the media and established industry became aware of the fintech phenomenon. LearnVest, a financial planning company, was one of those startups.
"It's amazing to think how far fintech has come."
"I started LearnVest in 2008, when the Great Recession made me realize how urgently we needed better financial tools and technology," said Alexa von Tobel, the company's founder and a founder and managing partner of the investment firm Inspired Capital.
"It took a few years for the startups founded in the wake of the financial crises to really take off and for the broader industry to start to take notice," she added. "It's amazing to think about how far fintech has come."
Unicorns and Robots
Indeed, a decade on, fintech has evolved from a snappy label for plucky startups to a phenomenon embraced by large publicly traded companies. Fintech has grown to include over 100 fintech "unicorns" (relatively young companies estimated to be worth $1 billion or more) around the world that offer online platforms with a full range of financial products.
In retrospect, established banks, brokerages and other financial services firms helped make this success and growth possible by growing overly comfortable with their market positions and neglecting innovation.
Now that these firms have awakened to the threat posed by the convenience, speed and lower cost of fintech competitors, it is a good time to look forward and envision what fintech will look like in another 10 years.
To do this, I interviewed more than a dozen of the company founders and executives who helped build the technology behind fintech's first decade. Founders blend creative thinking and lived experience with an understanding of the limits of technology. They provide a realistic perspective on what the future holds.
Automating Day-to-Day Services
Despite a decade of progress, fintech has not yet truly "automated" our financial lives. Households still must keep tabs on many routine financial activities such as paying bills, minding their budget, reviewing credit card statements, tracking investments, paying taxes and collecting government benefits. Many also monitor dependents' finances and help older relatives manage their finances.
Today, there are services to help consumers with these routine tasks, but they generally are standalone products. For example, Bobby, Dyme and Truebill manage subscriptions; Carefull, EverSafe and True Link Financial keep tabs on the finances of older relatives and dependents; Daffy and Give handle charitable donations, Propel helps government aid recipients track benefit payments, and robo advisors can manage cash balances or assist with tax strategies.
Why hasn't the financial services sector been able to better automate clients' entire financial life? Outdated technology. Most financial services firms rely on a mishmash of vendors and software built 20 to 40 years ago.
Impediments to Progress
"I'd estimate that our engineers used to spend seventy percent of their time integrating with old legacy systems — time that could have been spent building client-facing features," said Simon Roy, founder and former CEO of Jemstep, which makes software for financial advisors.
Over the next decade, he added, financial service providers will adopt new software, improve communications between programs and refine their data. The intention is to empower fintech firms to simplify your financial life by automating tasks that can be done on your behalf.
This may include notifying you of upcoming deadlines and monitoring accounts for you and your family, among other essential but mundane tasks. The goal is to minimize how much time you think about money.
Automating your routine financial needs and modernizing the industry's infrastructure go hand-in-hand with another major change in the coming decade — a financial assistant powered by artificial intelligence (AI).
What Can AI Do for You?
Today, leading fintech firms offer online access to a huge variety of financial products without the need for large networks of branches or face-to-face meetings. The current online user experience, however, is oriented toward viewing accounts and balances. Consumers need more sophisticated information, such as advice on making financial decisions in the face of competing financial goals and a limited budget.
"Money is the most emotional thing on the planet. It is hard for an AI to handle the nuances of human emotions."
The impact the rise of AI-based assistants will have on jobs in the financial industry is unknown. It may accelerate the decline of some roles (like bank tellers) while helping other roles (such as financial advisors) become more efficient and effective.
What is the current state of AI? Firms like Trim, Cleo and Digit offer computer programs called chatbots (designed to look like online chat with a representative of the firm) that answer relatively straightforward questions about a client's budget and spending. They do less well with amorphous questions and financial decisions.
AI Still Has Much to Learn
Here is an example of a complex question someone might want to ask an AI assistant: "I think I need to buy a new car this summer. If I bought a car and the family took a vacation like we did last August, how would that impact my finances?"
That example of a more unstructured question requires a more sophisticated financial planning AI capable of researching the cost of certain activities as well as the user's spending habits, goals and liquid assets. In the coming decade, better AI technology — as well as the previously mentioned improvement in tech infrastructure — will make this kind of advanced AI assistant possible.
Forecasts of the broader use of better AI is not meant to imply that every human who currently works in financial services will be out of a job.
"Money is the most emotional thing on the planet," said Bill Harris, former CEO of PayPal, Intuit and Personal Capital. "It is hard for an AI to handle the nuances of human emotions. There will always be a place for the human touch."
Fintech 2032: The Rest of the Story
The changes expected in financial services over the next decade will not be limited to the automation of your day-to-day needs and AI-based financial assistants. The second part of Fintech 2032 will discuss the growth of decentralized finance (known as "DeFi" for short), the mainstreaming of alternative investments and what else the future of fintech may hold.