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By adaptive - June 19th, 2017
A number of mobile investment platforms aim to improve the financial habits, and fiscal health of niche markets, targeting minorities and millennials. Hans Klis investigates the early returns…
When Carlos Armando Garcia started his first job in 2002 at Merrill Lynch, he made the same mistake many Americans of Latino descent make. The recent MIT grad – who grew up near the Texas-Mexican border - didn’t sign up for a retirement savings account. “I had to go through and sign a stack of papers from HR. I didn’t know what a 401k was, so I didn’t take it.”
Financial habits are passed down from your parents, Garcia explains in his office in New York’s hip SoHo neighborhood. “You see them speaking to their wealth manager, their bank, making college plans. While that happens in most American families, that isn’t necessarily true for Hispanic families.”
Participation of Latino Americans, immigrants or native-born citizens, in retirement savings is low. One obvious reason for that is the pay disparity. Pew Research Center found in 2015 that Hispanic men on average make 69 cents on the dollar, compared to white men. That makes saving a lot harder.
But according to the Employee Benefit Research Institute only one in three working Hispanic Americans have a 401k retirement plan through their employers (most small businesses don’t even offer them). In general 74 percent of Hispanic families have no retirement savings at all, that’s more than two times as high as white families (African Americans are at 59 percent).
This is as much a cultural issue as it is one of access. Hispanic families are not bad handling money, Garcia stresses, adding, “Hispanic families have other values like a strong work ethic. Our day-to-day money management is good, but planning for 15 years ahead is not”.
To help educate Latino Americans and also other minorities about the importance of retirement savings and how to easily and efficiently manage 401k accounts, Garcia recently launched Finhabits. This bilingual mobile investment platform offers multicultural consumers an easy way to invest small amounts of money to manage their funds. It features an easy to understand graphic interface and educational fun blog posts explaining bonds or IRA’s in both English and Spanish.
Users can start with an investment of $5 per week. This can be used for retirement savings, building a college fund for children or buying a new car. In minutes you can set up a portfolio that comprises fractional shares in equities, government or corporate bonds, as well as real estate. “We don’t comingle your shares with other users. You own the shares. You get the dividends.”
Investment apps like Finhabits trade on transparency and ease. There are many requirements and hoops to jump through to invest with a bank: you need to have an account, make an appointment with an investment manager who might only be available for four hours a week, and you might need to invest a minimum amount of fifty thousand $50,000 or when you do it yourself, start with $5,000.
The consumer who uses Uber or Amazon just doesn’t have time for this, Garcia explains. As a former quant fund and hedge fund CEO, he understands the extreme complexities of investing, the risks, and the importance of simplifying this for the user.
Rise of Mobile Fin Investment Platforms
Even though traditional banks have been slowly invading the mobile investment space – because of regulatory issues or lack of adaptability of legacy systems - some have launched their own apps: Barclays CFD & FST, Citi Corporate and Investment Banking and BNP Paribas MobileMarkets. But these do not translate the abstract practice of stock trading to an easy to use interface for more casual traders.
The need for simplified financial service interactions is driving the boom in the financial mobile space. In recent years the financial sector has seen a growth boom in the mobile space. Business intelligence company App Annie has seen sessions in financial apps – banking, payment etc - grow more than 100 percent in the last two years to 110 billion. There has been robust growth in Asia, where a combination of tech savy consumers and sympathetic regulation for startups have boosted the mobile financial space.
“In the US, trading apps like Robinhood and micro-investment apps like Acorns are growing rapidly, but mobile payment apps like Venmo still have significantly larger reach”, says App Annie’s Territory Director, Northern Europe and Middle East, Paul Barnes.
Payment apps like Stripe and Zelle are popular with Millennials. PayPal’s Venmo processed $4.9 billion in person-to-person payments in Q3 of 2016, according to company reports. That was an increase of 131 percent over the same period in 2015. Analysts see transactions skyrocketing to $84 billion in 2018.
Instead of going to the bank, you can now lend money or get a mortgage through apps like Rocket Mortgage, Lending Club, Funding Circle or RateSetter.
Consumers are willing to place a lot of trust in apps that simplify important life decisions, Barnes explains: “Apps have clearly gone mainstream, and the growing market for finance apps is a prime example of this. Increasingly, more of us are willing to trust online and mobile first organizations with our sensitive financial data and to interact with them via our mobile devices. This is a huge change for the personal finance industry, but also demonstrates just how much our trust in mobile apps has grown.”
But in countries like China investment apps have become the most popular and most downloaded finance apps, Barnes explains. “These apps have opened up investment services to the general population, and for the majority these apps are the only option for personal investment. Well-established Chinese technology giants such as particularly Alibaba and JD.com, have become major players in this space. They’ve been able to leverage their existing reputation and user base to rapidly grow the sector.”
How to explain this growth in the use of financial mobile apps in North America and Europe? Consumers just don’t like going to the bank for anything, consultancy firm Bain & Company found. A physical interaction has 2.4 times more chance of annoying the consumer than using an app. In a 2015 report Bain saw a steady decline in bank visits. For every hundred mobile banking interactions, there were sixteen fewer interactions at bank locations.
Individuals Look to Earn Big Bux
One of the leading services that’s making investing easier is Dutch startup BUX. Launched in November 2014, its mobile investment app has garnered 940,000 users so far. Unlike Finhabit’s demographical approach, BUX uses gamification to get consumers to get into the trader game. New users learn the ropes in a virtual market with a non-existent currency, funBux. It’s a tactic that’s shared by rivals like Wall Street Survivor and Robinhood to get hooked on the magic of trading.
“We want to offer an environment that makes it easy and safe for inexperienced traders to get the hang of investing before they put real money at stake,” founder and CEO Nick Bortot explains. He’s a former board member of Dutch online brokerage Binck Banck.
“There are unscrupulous brokers out there who are profiting from their customers' losses but it's an unsustainable business practice that, sooner or later, will be held up under regulatory scrutiny,” Bortot asserts. “Instead, we want to enable newbies to learn the ropes of trading in a risk-free way by practicing with our virtual currency before investing their funds”.
It seems to be working, BUX makes fifty thousand euros worth of trades per day in virtual (funBUX) and real money (seriousBUX). The gamification element is used to attract the casual mobile gamer and would-be trader.
According to Bortot about ten percent of virtual traders open a real money account. “From my 15 years of experience in online brokerage, I knew there were many more people keen to get involved in the stock market. At the same time, the average person is put off by all the complicated charts and financial jargon. There are a lot of studies that show financial literacy amongst millennials is very low. We saw the huge potential in this growing, underserved market.”
BUX focuses on all sorts of consumers, albeit most specifically on 18 to 35-year-olds. A good bet according to Wells Fargo, this is a group that’s very worried about their financial future and at the same time very trusting of new technologies. “Our goal is to make the financial markets accessible to everybody,” Bortut explains. “We tailor the app locally in terms of language, content and support, so it's relevant for the local community in each country we're present in.”
This common broad approach among investment apps makes Finhabits’ niche tactic in targeting users unique, but not less lucrative. Latino Americans represent 17 percent of the United States population, African Americans about 15 percent. The backstory of CEO Carlos Garcia, as a member of the Hispanic community coming to grips with the concept of a 401k, resonates and provides a powerful narrative that fits in neatly with the American Dream. And it might just be the way for a financial service to tap into the underserved and mostly untapped $4 trillion financial market the Hispanic community represents in the US.