I usually tend to filter out the noise in tech media, but this week I’ve come across two articles about the Fintech space (both about products I use and love) that needed to be addressed. These articles had a similar underlying tone – disappointment in the size and growth of some of the premier Fintech companies.
Silicon Valley investors have singled out consumer finance and banking as an area ripe for disruption by more nimble technology-driven startups. That was the premise behind Simple—but the draft document appears to show how hard it is to gain deep traction with consumers, even for a company founded back in 2009. Regulatory hurdles are part of the story. And, as with startups in other areas, delivering on high-profile pledges to “disrupt” huge swaths of American industry isn’t always as easy as it looks.
The second post was by a finance blog, I Heart Wall Street, and was skeptical regarding “robo-advisers”, such as Betterment and Wealthfront, who seek to disrupt traditional Wealth Management. He writes,
I want to celebrate that 14 million household optimism, I really do. But, as an artist, I’m dark and tortured, so I can’t. When I see that after six years in some cases (Wealthfront and Betterment), the average account size between them is still about $47,000, and they now have almost 44,000 clients collectively I just cringe to think maybe we’re seeing another Adam Sandler film in the making. By the way, FutureAdvisor was founded in 2010, and currently has 800 clients.
While these are just two examples, over time I’ve come to realize that many people, from media to investors, expectations of growth and the models of growth in Fintech are a bit unrealistic, due mostly to demographics and the nature of money.
As opposed to most consumer tech companies, consumer fintech seeking to use technology to disrupt investing, are facing a major demographic headwind – those who are the most tech saavy are the least wealthy. Below is the chart of internet users by age (from Pew)
As you can see, almost 50% of those 65 and older don’t even use the internet and ,while I am making an assumption beyond the data presented, those in the 50 – 64 demographic are not as tech-savvy as the products
Now contrast this with Median Household Wealth by Age Group (according to the Census Bureau)
So demographically speaking, this gives you a small addressable market at first, however, as the demographics shift and more tech saavy consumers have more wealth, this market will grow, and FAST. If you are writing about, building, or investing in a fintech product seeking to disrupt this market, you must be patient and understand this.
At StockTwits we see this in our own data. Below are our demographics:
We skew very young as compared to many of the financial media incumbents and we believe as the demographics of wealth shift, it will bring in many more consumers whose media consumption habits are less portal and TV-driven and more social, mobile, and search-based, a move for which we are very well-positioned.
Collectively, we have become accustomed to talking and writing about consumer tech companies who have very different (and actually quite opposite) growth curves than many consumer Fintech companies. Apps that approach the younger, more tech savvy market usually have tremendous growth at first and then fizzle out as they either ruin their relationship or the market outgrows them. Finance has always tended to be a relationship business and it’s my belief that Fintech companies who take time to develop a great relationship with their early adopters will be rewarded with tremendous growth as demographics shift in their favor.
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