Fintechs and the stock market invasion

It seems that when it comes to the future of stock investing traditional institutions like banks and stock brokers will soon be completely replaced by fintech start-ups that outdo each other in attracting young customers by offering them low-fee and easy-to-use investing opportunities in brands they know, love and trust, writes Stephanie Brennan, founder & CEO of Evarvest.

Are you a Millennial or Gen Z? Have you ever considered investing in stocks? If yes – congrats! You’re part of the growing majority. According to Morning Brews 2017 report, 89% of the 9,000+ people aged 18-35 they interviewed in the US, Canada and Europe invest. In the light of this it’s no surprise we’re seeing increased competition in the fintech space, with modern fintech start-ups springing up like mushrooms all over the world. This will certainly continue in the coming years.

Young people want to invest in stocks and many companies have noticed the high potential coming from providing them with attractive and accessible trading opportunities. Companies like American Robinhood, British Freetrade, Israeli eToro, Australian Stake, or our Lithuania-based investment platform Evarvest that we will be launching at the beginning of 2020 were all created and designed with a view to support young and mostly non-experienced investors. If you consider how many banks / stock brokers there are in the world, increased fintech competition is definitely a good sign that marks an important step towards popularising stock market investing among young people.

89% of 9,000+ people aged 18-35 they interviewed in the US, Canada and Europe invest.

Many say that the rise of the fintech scene was caused by the development of new technologies that, on a daily basis, are changing the way we live. This sentence is only partially true. As an investment enthusiast, I’ve been observing that year by year (or should I say month-by-month) new technologies are reshaping the outdated investment sector by making it much more attractive not only to seasoned investors, but also younger people. But saying that the fintech trend is being driven only by modern technologies would be unfair.

In reality it was triggered by a combination of technological advancements and a favourable environment resulting from changing social behaviours driven by the proceeding globalisation. It’s a bilateral relationship where one phenomena fuels another one, and vice versa. New technologies drive social behaviours, which than fuel the further development of new technologies. And so it goes…

So, for one second – let’s leave the technology behind and take a look at three more social-related factors that have mostly contributed to the growing popularity of fintech start-ups offering stock market investing solutions for Millennials and Gen Z.

• Consumerism & brand fascination – with everything being online people all over the world are much more aware of the most successful global brands. And knowing their founders and executives and stories behind them, they appreciate being able to play a part in the success of brands they believe in and support as consumers. In addition, as a result of social consumerism, in a lot of respects, there’s a level of competition and even elitism to being ‘an investor’. Being financially successful is ‘cool’ and is a growing aspiration for younger generations – it’s part of why crowdfunding platforms like Seedrs are doing so well.
• Financial uncertainty & lingering distrust in banks – recent crisis developments across many countries increased the level of financial uncertainty. Bearing in mind that the majority of today’s Gen Z & Millennials, who now make up 63,5% of the global population, have lived through the 2008 recession, it means they were raised in conditions marked by financial anxiety and a lack of trust in traditional financial institutions like banks. The release of the inaugural Deloitte Trust Index for banking in October 2018 has solidified the sector’s diminished standing in the eyes of the general public, with just two in ten people believing the banks have customers’ best interests at heart. As a result, younger generations are realising the importance of investing, including investing in stock markets, as the only way to gain financial security and wealth. But at the same time they’re more eager to put their trust in modern fintech companies providing them with better user experiences and value than traditional institutions, and ultimately helping them to reach their financial objectives.
• Cost awareness – last, but not least – both the greater accessibility and growing popularity of cross-border money flow (think TransferWise & Revolut) is translating into young people’s higher cost-consciousness. People don’t want their returns to be diluted by high fees imposed by banks or traditional stock brokers anymore. And thanks to the use of technology, start-ups are able to offer solutions that are much leaner than those offered by established institutions. In today’s world low-fee or commission-free really works for any investment platform because consumers’ ultimate decision maker among similar products will always be the cost.

Recently, large US brokerage firms have realised that to compete and meet the needs of younger generations they need to change, announcing they’re reducing their fees to zero. When an industry goes to zero on price, the competition between brokerage firms will no longer be on price but on value – a great step in the right direction for an industry that’s needed changing for a long time!

One thing that is for sure is that with the growing popularity of fintech start-ups and the investment solutions they provide we’re experiencing a turning point in the investment ecosystem.

A few years ago if you wanted to invest you had to contact a stock broker or sign up to your bank and, most often, pay high brokerage fees. And today, you’re able to purchase the stocks you’re interested in, not only for a smaller price, but with just a few clicks on your phone. What Tesla has done for popularising electric cars, Fintech’s are doing for the finance industry. Finally, the time has come for making investing as simple as having a smartphone and a good Wi-Fi connection – the way it should be!

This article was originally published on our partner site, FinTech Futures >>