Fintech

The 50+ Segment Will Spend $15 Bn on the Alternative Financial Services Sector by the End of 2017. What Are We Doing to Meet Their Needs?

MEDICIGlobal Head of Content

Innovation in the financial services industry often aims to democratize access to financial products for the masses, boosting financial sustainability and long-term resilience for unforeseen circumstances. There is a particularly vulnerable group, however, that has not been tended to amidst the millennial hype – the 50+ demographic.

The 50+ consumers increasingly find that their needs are not met by bank offerings alone. Meanwhile, a recent study by the American Association of Retired Persons (AARP) called Financial Innovation Frontiers, found that this segment will spend $15.3 billion in the fast-emerging alternative financial services sector by the end of 2017, and that number is expected to grow by a healthy 4.25% annually through 2021.

Further, we will dive into fascinating findings by AARP, indicating an overlooked opportunity for financial innovation for the 50+ group, and potential financial implications.

Financial stress factors that increasingly are part of life of the 50+ demographic in the 21st-century economy

  • The impact of unexpected expenses and financial emergencies
  • The realities of caregiving for parents
  • The burden of student loans (for children, grandkids, and sometimes even their own decades-old debt)
  • The personal responsibility of saving for retirement
  • The rising cost of healthcare
  • The overwhelming complexity of financial products
  • The lack of tailored and helpful digital tools

The undervalued hallmarks of the 50+ demographics

The digital acumen of 50+ consumers is not to be underestimated: they have spent their adulthood adapting to technological change that has fundamentally touched virtually every aspect of their daily lives. The 50+ consumers carry digital devices and use them regularly, too – even when it comes to something as important, private, and challenging as managing their money.

In fact, while ownership of smartphones more than tripled among US adults from 2010 to 2015, it jumped 11 times among consumers who were born before the Baby Boom generation began in 1946.

Not only do 50+ consumers carry and regularly use devices, but they are also open to trying new approaches. They have proven they can adapt to rapid technological change. However, they lack innovative digital tools, services, and products necessary for a generation facing uniquely complex financial times.

The 50+ Segment Will Spend $15 Bn on The Alternative Financial Services Sector By The End Of 2017. What Are We Doing To Meet Their Needs?

Source: Financial Innovation Frontiers

However, above all, AARP notes that 50+ consumers have good savings habits, yet they don’t know where or how to start tightening their belts to cope with debt. In their scramble to manage their finances with every available tool, they are turning to alternative financial services and products when traditional approaches fail them.

The financial opportunity with the 50+ segment

The 50+ segment represents 35% of the entire US population (111 million Americans of 50+ age) and controls 56% of the nation’s investable assets.

Americans who are 50+ account for an enormous portion of the traditional banking industry, to the tune of $116.8 billion in revenue in 2017 (a combination of revenue from checking and savings (DDA) relationships, credit cards, and consumer lending, the total of which is expected to reach $123.7 billion by 2021, according to AARP).

The 50+ Segment Will Spend $15 Bn on The Alternative Financial Services Sector By The End Of 2017. What Are We Doing To Meet Their Needs?

Source: Financial Innovation Frontiers

The study suggests that for a single investor addressing the needs of 50+ consumers for non-bank DDA, consumer credit or lending products, tapping the growth in the market without replacing existing players is a multimillion-dollar opportunity.

In fact, by the end of 2021, an investor who stakes a 12.5% share in any of these markets could have potentially earned between $61.6 million and $160.6 million from customers of the 50+ group. Consumer credit is the most lucrative market for investors, with lending close behind with a 12.5% market share equating to $123.9 million in revenue over the next four years.

The 50+ Segment Will Spend $15 Bn on The Alternative Financial Services Sector By The End Of 2017. What Are We Doing To Meet Their Needs?

Source: Financial Innovation Frontiers

How can innovators address the needs of the 50+ segment?

  • Remove friction from the user experience

AARP emphasizes that innovators should enable consumers to choose the channel — or a blend of channels — they prefer and satisfy real-time expectations for moving money.

The 50+ Segment Will Spend $15 Bn on The Alternative Financial Services Sector By The End Of 2017. What Are We Doing To Meet Their Needs?

Source: Financial Innovation Frontiers

  • Improve customer service

Customers should be able to connect with advisers at pivotal moments. Moreover, innovators are suggested to take advantage of teachable moments by enabling customers to learn in the context of a digital transaction.

  • Proactively deliver personalized insight and advice

Products and services should be tailored specifically to help consumers prepare for financial shocks, such as to cope with ongoing healthcare costs, to save for retirement. The appropriate amount of risk needs to be identified for an individual investor, with data mined for one-to-one insights and advice.

  • Transform financial anxiety into digital empowerment

Directly tie digital services to time-honored personal finance principles. Customers need to be demonstrated a bigger, more comprehensive financial picture. Service providers need to be proactively teaching consumers how to establish healthy financial habits.

AARP suggests that financial innovators can apply lessons from LinkedIn by:

  • using gamification to pique interest and stimulate engagement
  • providing insight that can act as a catalyst for changing financial habits
  • inviting interaction by enabling customers to visualize and customize insight
  • recommending wise actions at every step of a 50+ consumer’s financial journey
  • Influencing regulatory change and financial policy

Encourage healthy digital disruption in key topics such as consumer protection, aggregation, the fiduciary role, the expansion of access to government data, and new models to evaluate creditworthiness and sell loans.

Conclusion

“When the most financially challenged generation in US history asks, 'Where do I start, and whom do I turn to for help?' – they’re talking to you – the FinTech innovators, retail bankers, investment brokers, venture capitalists, insurers, advisers, and regulators. You’re the ones who can forge a new prototype for how 50+ consumers achieve financial freedom,” the AARP study concludes.

“Seizing those opportunities starts with a mindset that 50+ consumers care about financial freedom – a lot. They’re motivated because time is no longer on their side. They have the digital tools, a record of adapting to change, and digital-first habits. They’re empowered by digital access and real-time oversight. But they face unprecedented financial stress and complexity. They need personalized help that guides them in their increasingly mobile-first lifestyle. And they’re eager for you to back it up when you say, 'Start here, with me.'"

Elena Mesropyan

MEDICIGlobal Head of Content

Global Head of Content, MEDICI

Elena is a research professional with a background in social sciences and extensive experience in consumer behavior studies and marketing analytics. She is passionate about technologies enabling financial inclusion for underprivileged and vulnerable groups of the population around the world.