Financial technology is booming. With more than 6,500 new companies backed by approximately $24 billion in venture capital, the world of global finance is undergoing a profound transformation.
These companies may grow to impact every corner of the financial universe in the coming years. However, many of them are also operating in financial niches that the average person — even the average personal finance enthusiast — can safely ignore. There are five really major trends that likely have started affecting your day-to-day life as someone who consumes stuff and needs to pay for that stuff, at least most of the time. Here’s what they are.
1. Digital Wallets
Digital wallets are the new black. The ability to pay for everyday items at the point of purchase using just an app is the image that most people think about when digital wallets are mentioned, but that’s only one of the things digital wallets can do, and a relatively basic one at that.
Here’s a simple way to understand digital wallets:
Digital wallets have three parts.
- The Device. Your smartphone plays the role of the trusty leather wallet, carrying around the cards (applications) and keeping everything together.
- The Application. Any digital wallet application, like Apple Pay or Google Wallet, becomes a new version of the plastic debit and credit cards we’re all used to carrying in our pockets.
- The System. The actual back-end electronic infrastructure that powers digital wallets isn’t really different than the system that powers existing bank and credit cards, and in most cases the “last mile” of your payment will still be processed by your bank or credit card issuer. Apple Pay, for example, enables payments from over 800 banks in the US alone.
Have you been using Apple Pay or Google Wallet since the day they launched?
Then take your digital wallet game up a level by using Venmo to split restaurant checks with your co-workers just like all the early adopters in San Francisco.
Or, try the LifeLock wallet if you have more anxiety about losing your wallet IRL than being up to date on the latest account-to-account transfer apps.
Online wealth management services, that are now almost exclusively referred to as “robo-advisors” in the media, started getting a lot more attention in 2015.
The real promise of robo-advisors is that average investors can build significantly more wealth over time, by combining returns that are optimized according to modern-portfolio theory and fees that will always be lower than those of a human financial advisor, rather than using a CFP and investing through one of the big banks.
The two big names in the robo-advisor game are Wealthfront & Betterment. Vanguard Personal Advisor Services is another option from the frugal investor’s old friend, that combines robo-advising with some advice from a living person.
If you’ve already started considering investing with one of these services, it’s worth noting that Silicon Valley-based Wealthfront has been targeting the tech crowd with behind-the-kimono blog posts about stock options and hot tech companies to join, and Betterment has taken a different approach by aiming to work with financial advisors through Betterment Institutional.
The bottom line for these services will be the actual bottom line investors see. If robo-advising services are able to deliver the real-world returns that theory (and math) indicate they should, then younger investors will continue to send significant portions of their net worth to websites where they haven’t ever spoken to anyone, and be increasingly comfortable with that.
3. Personal Financial Management
Personal financial management has undergone a major transformation recently too. In the last year, personal finance technology has gone from tracking spending through spreadsheets and later bank-account aggregators, to apps that can tell financial stories to their users so they can make more intelligent, informed decisions about their finances.
XOBI doesn’t focus on accounting-related details, but a bigger picture that fits into your financial lifestyle.
So, for example, you can ask questions like, “How much do I spend on restaurants?” Then ask XOBI to compare what you spend on eating out versus eating in. Since these stories are told through both numbers and images, the experience of personal finance becomes much more visual and much less about charts.
4. Financial Education
The biggest trend in financial education has nothing to do with business school and doesn’t require a calculator. Instead, companies like NerdWallet and Credit Karma have started offering increased clarity to credit cards and credit ratings (among other areas) that previously were made purposefully opaque by the marketing departments of card issuers and rating agencies.
Sometimes, modern life causes you to consider signing up for a new credit card. If you find yourself in this position, then use NerdWallet or Credit Karma to compare benefits before applying. Don’t use anything else.
Your customer lifetime value is high enough that there’s a big incentive for credit card companies to try and get you to their brand by any means necessary.
Take advantage of the trend towards transparency, and you’ll likely end up with more rewards, lower fees, and none of the FOMO that comes from committing space in your wallet to a new card.
Full disclosure: several Credit Karma TV commercials were shot in my [the author’s] house in Oakland in 2014.
5. Loyalty & Rewards
While it’s not finance per se, the latest shopping and loyalty reward apps enable you to “earn” and “save” amounts that are potentially significant. While they are a trend that’s further from mainstream adoption than the other trends in this list, apps like Five Stars, Belly, and Perkville are changing the game for shopping rewards and making the (decades old!) credit card points monopoly seem offensive by comparison.
These services enable even the smallest mom & pop business to build a world class reward programs for customers like you, helping to make them more competitive with big box shops, and even more beloved.
The challenge with this trend will be to see which of the services will become the most popular in your area, before jumping in and signing up for all of them — which may be appealing for hard-core churners, but not the rest of us.
The best thing about each of these trends is that they make financial decisions and transactions better. They do each have a learning curve, but so does all technology. The real difference with each of these tech trends is that the time you invest will have a clear ROI.