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Fintech, Financial Systems, and Forward Thinking

Greg Palmer (@GregPalmer47) is Vice President of Finovate and Master of Ceremonies for FinovateFall 2019. His essay below is featured in the FinovateFall 2019 Supplement available in full here.

One of my favorite aspects of working in fintech is the way that it inadvertently reveals fundamental truths about human beings

As an industry, we have massive piles of hard data documenting human behavior, and we use that data to anticipate what people are likely to do and when they’re likely to do it. We can use this data to help reach customers with a specific message when we think they’re likely to buy a car or a home. We can use it to look for anomalies in customer behavior, which can be early warning signs of fraud. We can even use it to create a user experience that’s statistically likely to please a given user based on the demographic and personal information we have on them.

In many cases, though, this data doesn’t do much beyond proving what we’ve intuitively known (or suspected) for years. For example, the banking industry has known for a long time that people struggle to start saving as early and as often as they should, and that we’re all too lax when it comes to protecting our passwords and account information. We have data that can back this up, but the results are hardly a shock to anyone who’s paying attention. The average financial services customer, much to the annoyance of the high-achievers in the fintech space, usually doesn’t take basic steps to safeguard against fraud, optimize retirement savings, or plan appropriately for future expenses.

The fintech industry responds to this by creating products and innovations that are designed to make it easier for people to engage in responsible behavior. We’ll see this play out on stage at FinovateFall, where wealth management, savings, and security are looking like resurgent themes. I like to group these into a broader category of fintech, though, which I call “grown-up fintech”. Innovations in this larger category essentially boil down to helping end-users act more responsibly and manage aspects of their finances that they’ve ignored until now.

The real challenge with “grown-up fintech” usually has less to do with the technology itself, and more to do with getting people to change their habits. For most users, it takes some sort of shock or anomaly to spur a behavior change. The irony, of course, is that by the time this sort of shift occurs, it’s usually too late. Creating and sticking to a budget is far more valuable if you do it before you’re deep in credit card debt; talking with your parents about their end-of-life plans and their finances is much more fruitful while they’re still vibrant and healthy; and adding security features like two-factor-authentication (or even simply updating your password routinely) is way more effective before you get hacked.

(I don’t mean to imply that these shocks are always negative, either. Positive life events such as getting married, having children, or buying a house all come with unusual financial implications, and it’s way easier to navigate those shifts if you prepare for them ahead of time.)

If you sit in the audience at Finovate, you’ll be surrounded by people who know all of this. They will nod knowingly as presenters on stage talk about banking customers as though they were children who simply can’t be trusted to do their homework when the adults are out of the room.

I don’t have a problem with this at all, for the record. It’s not meant to be malicious (it’s usually coming from more of a parental, protecting place) and it’s not incorrect. After all, we have the data to back it up. What interests me, though, is how those same people who so easily see and understand this behavior in their customers struggle to account for it inside their own organizations. If we continue the parental analogy here, we have a lot of people falling into the classical parenting misstep of “do as I say, not as I do”.

When it comes to financial systems, there are a variety of major threats to the status quo. New, disruptive players entering the financial services space, tech giants launching competing financial products, more frequent (and more powerful) cyberattacks, and the increasing specter of a recession are just a handful of the major ones. On the flip side, new opportunities abound for those who are able to take them – new customer-bases are opening up, new sales and marketing technologies make it easier to access them, and back-end improvements allow for increased efficiency and lower overhead.

Many forward-thinking financial institutions are protecting themselves against those threats and setting themselves up to reap the rewards of those new opportunities. But an alarming number of FIs are falling into the same trap that too many of their customers are: they aren’t making the “responsible” or “grown up” decisions right now that will make their lives easier in the future. Instead, they are waiting for the next big shock to force them to change their behavior.

In reality, this behavior isn’t childlike – it’s human. And it’s something that we’re all guilty of to some extent. Equally “human” is the tendency to recognize behavior in others that we fail to see in ourselves. The financial industry generally, and fintech specifically, puts people in a unique position to see and understand these basic human behaviors, which creates a powerful opportunity for learning and growth. Those that see this behavior, learn from it, and apply those lessons internally will be better prepared for the inevitable shocks to the system that the future will bring. Those that don’t will be left wishing they’d done more.

The time to start budgeting is before you’re deep in debt; the time to secure your accounts is before you get hacked; the time to discuss your parents’ finances is before their health starts to fail; and the time to future-proof your bank is before the next shock to the system hits.