The millennial (1980-2000) - it is a term both full of connotation and subject to endless theorizing, analysis, and hypotheses. Interest in the millennial will only intensify as the generation enters a period of financial potency. And while data extrapolation and surveys will continue to illuminate who the millennial is as a consumer of goods and services, the relationship between the millennial and money has the potential to re-calibrate the financial industry. This week Mondato Insight asks, is financial technology deliberating the needs and ethos of the millennial?

Meet Mr. & Ms. Millennial

There is ample literature on the monetary idiosyncrasies of this fledgling generation. The financial crisis has clearly instilled a salient distrust of associated institutions. 93 percent of millennials are not only fearful of market fluctuations, but consider their knowledge of investments inadequate to compensate for this instability, further undermining millennials’ long-term wealth growth prospects. These perceptions are reflected in the high percentage of cash holdings and the low percentage of stocks present in millennial portfolios, despite restrained interest rates. A study from State Street reported that cash represents approximately 40% of millennial portfolios. In a similar vein, Deloitte released a corporate insight which concluded that stocks account for a mere 30 percent of their investments.

But deep suspicion or wariness of the financial industry need not necessarily translate into withdrawal. Proprietary consumer survey data from Corporate Insight revealed that 60 percent of millennials rated education in regards to financial services as ‘very’ or ‘extremely’ important. This is in juxtaposition to only 47 percent of generation X and 40 percent of baby boomers. Millennials still yearn for inclusion in the financial markets, but on vastly different terms to that of past archetypes. Access to information distributed by a gatekeeper, such as a financial advisor, is a process millennials have flatly rejected. Instead, they pursue knowledge through independent research. Financial advisors serve only as retroactive corroboration. According to the publication, Future: Expectations and Motivations of Affluent Millennials, a paltry five percent of millennials expressed a preference to rely mostly or exclusively on an advisor in contrast to 23 percent of generation X.

Attitudes, however, do not constitute the whole equation. The material reality that confronts millennials will inform their financial priorities and the offerings most relevant to their lifestyles. One way to gauge this is to quantify the definition of millennial financial success. Facebook IQ collected audience data, conversation analysis, and surveys to aggregate crucial insights on millennials and their connection to money. The results were informative. Millennials characterize success as: being debt free (46 percent), owning a home (21 percent), buying experiences (16 percent), being able to retire (13 percent), and buying nice things (4 percent).

The burden of debt and accessing credit clearly pervades through the mind of the millennial. This anxiety has allowed companies that specialize in loan restructuring, social lending, atypical calculations of credit scores, and interest rate data sharing to flourish. While debt appears to be the forefront issue, the desire to participate in long-term saving remains firmly in the background. The affordable, convenient options available for self-directed personal investment and trading or robo-advising are unprecedented, and enjoy immense popularity with millennials.

But these services, and how they package themselves, aren’t wholly circumstantial. The financial crisis may have imparted to millennials perspectives on traditional finance they will never shake. Its simultaneous passing, too, with the advent of APIs and technology advances, is well suited to millennials’ distaste for brick and mortar as well as their propensity for digitization. However, that is not to suggest millennials are wholly reactionary. They carry visions of the future which they adamantly expect to be incorporated into any alternative, digital financial industry.

Catering to the New Kid on the Block

Identifying trends through polls and surveys is one strategy to understand the impact of millennials on fintech. Another is to directly question the source. With this in mind, Mondato approached two firms to inquire about the role of millennials in the formulation of each respective’s digital business model.

WeFinance is a startup that has designed a pure peer-to-peer lending platform. Other entrants in the market, such as SoFi, complement their peer-to-peer funding with venture and debt financing. The platform enables users to leverage their social network as a means to secure not only a loan, but a reasonable interest rate. In an exclusive with Mondato, Eric Mayefsky, the Co-Founder and Chief Executive Officer, communicated that control is a fundamental component to WeFinance. The borrower dictates the purpose of the loan, the value of the loan, the value of repayment installations, the repayment timeline, and even the interest rate. Each borrower is allocated a campaign page, with private or public functionality. Borrowers who elect to advertise within their network share a private link that directs tentative lenders to the campaign page. Borrowers who decide to advertise outside of their personal network to a public audience anticipate a higher degree of scrutiny. In order to entice lenders, borrowers generally pledge a more attractive interest rate and provide a detailed profile that could include education, credit score, loan history, and income.

While control and accountability are fundamental to millennial users, WeFinance has exploited another medium essential to their youthful base by integrating its product into social media. As Mr. Mayefsky elaborates, “A lot of folks in financial services are buying people through mail, or they are even using an aggregator like lending tree. We are doing something that is starkly different. We are allowing our customers to tell the story for us. Therefore, a lot of it is organic, but there are ways for us to amplify that organic signal. We share a lot of our borrowers’ posts on our own Facebook page, and then pay to re-share those posts. But, our borrowers really own this process, and get to advertise our product in their own voice.”

The injection of digital financial services into social media seems almost inevitable. Polling data indicates that millennials respect social networks as a plausible repertoire of financial knowledge and consultation. 91 percent of affluent millennials would use a social network to evaluate commentary regarding financial markets and events. That is a noticeable contrast to generation X, which registered only 53 percent in the affirmative. With a little imagination and thought engineering, a logical progression emerges. An age cohort that is comfortable collaborating on intellectual capital related to finance on social media platforms would likely be open to embracing a system that involves digital finance itself.

Hedgeable is a digital automated asset management firm which endeavors to provide the same sophisticated investment features as that of private wealth managers, who are available to the most prosperous classes. Mike Kane, Hedgeable Master Sensei, explained in a recent interview: “If you look at our product set on the feature side, what we try to do is disrupt what would have been traditionally very high end products. With one dollar, we try to give the customer access to the same features available to a client investing 10 million dollars at Goldman Sachs." This ‘democratization’ of financial services is a mantra that resonates deeply with the millennial ethos.

This ethos of the millennial generation acts as both a propelling force and creates a feedback effect in the development of portfolio features at Hedgeable. Shane Hampton, Hedgeable Investing Samurai, detailed the circular relationship between millennials and the expansion of digital offerings, which include venture investment, impact investment, and Bitcoin investment. "A lot of the access that we are pitching, which was previously available to only very wealthy clients, is to services that crossover with what millennials are looking for. Bitcoin and socially responsible investing are heavily skewed toward younger people in terms of the demographics that are both interested in and aware of them. The younger demographics are in touch with the social implications as to how they invest their money. They are very cognizant of the impact their money has on the society at large. It also extends to our venture capital investing. Those who are going to be responsive to investing in Uber, or Spotify, are the people who have these companies intertwined into their everyday lives.”

Responsive is an appropriate description to the millennial reaction to Hedgeable. 50 percent of its users are millennials, while 85 percent are under the age of 50. And, it is anticipated that market share of millennials will continue to increase in the industry of digital wealth management. Millennials do not particularly subscribe to a notion of brand loyalty. In fact, millennials not only have a muted sense of brand affinity, but are more open to finding financial service solutions outside of the traditional molds. 67 percent of millennials would consider comparable products from Google, Facebook, Nike, or other outsiders. Only 45 percent of generation X shared the same sentiment. The technology giants that the youth have been spoon fed on for the past decade are in an advantageous position to rehabilitate ‘disenfranchised’ millennials.

All Signs Point to Digitization, With an Extra Helping of Sensitivity to Ethics

Millennials are open to the interloper. The banking industry, especially after the financial crisis of 2008, has become a symbol of wealth consolidation, unreliability, and even corruption. Millennial savings behavior reaffirms this impression. But who are they gravitating to? It could possibly be the heavy weights like Google and Facebook. It could also possibly be digital financial service startups which, due to technological advancements, can devise innovative solutions at a price point palatable to the millennial. Democratization, disruption, innovation: these are all concepts firms like WeFinance and Hedgeable can incorporate into their value propositions, and ones that millennials empathize with. And it’s likely these products will further assimilate into digital social networks as a way to reach millennials- creating a feedback effect that will normalize the introduction of digital money into social networking sites.

Still, financial services products may have been forever altered. Millennials appear to value a world that operates on the premises of fairness. Socially-conscious investing and a hope to obtain communal access to financial services (whether through adjusted interest rates via peer lending or distributing sophisticated investment tools to the masses) are symptoms of this mentality. Where there is money, the financial industry will go. Perhaps, though, where they go for millennials, and how they do it, will look a bit different.

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