FinTech Bridges Millennial Investing Gap

To move toward retirement, and to have the money in place to get there, millennials need to make the leap from bare bones banking — checking and savings — into investing.

In an interview with PYMNTS, Neel Ganu, CEO of FinTech Finch said that combining banking and investing activities into a single account can help these younger consumers optimize their daily finances and grow their wealth in the meantime.

To look to disrupt any vertical requires addressing pain points – namely, what’s not working.

Across the last 10 years, he said, a range of players have entered the online investing market, leveraging features such as commission-free trading, fractional investment and minimum accounts.  Such efforts have done much to democratize investing, said Ganu, but they have not done enough — especially where younger demographics are concerned.

Statistics, he said, show that three out of five millennials don’t invest at all, opting instead to stay on the sidelines.

People who were invested when the markets quadrupled over the last 10 years likely have reaped the rewards, but as Ganu noted, there are more than 112 million people who have missed out on those gains.

Eyeing the Landscape

That gap comes even against the larger backdrop where big banks have been, increasingly, getting into online trading — and other platforms have emerged to snare tech-savvy investors’ dollars. Morgan Stanley, of course, bought E-Trade.  Schwab struck a deal to buy Ameritrade.   Robinhood, of course, has been grabbing its share of headlines.

Though the trading space has gotten increasingly crowded, Ganu maintained that Finch sits at the intersection of the two spheres of banking and investment, in stark competition to other firms.

“Our target customers are millennials. And the key things here is mindset — these are people who know that investing is good for them, but for a variety of reasons, they may not have gotten started,” he said.

Roughly two thirds of that target demographic is living paycheck to paycheck, even as their peak earning years are in sight.  The good news, he said, is that this generation has ample time to turn things around before retirement looms on the near term horizon.

Autonomous Finance

In terms of mechanics, according to the company, Finch invests users’ checking balances into a tailored portfolio mix that matches account holders’ risk profiles.  Finch automatically invests users’ balance into a portfolio of diversified exchange-traded funds (ETFs).  The account earns returns on the balance while giving them instant access to money for every day spend (80 percent of the balance outside of market hours).  The model, he told PYMNTS, is one based on “autonomous finance,” which sidesteps the oftentimes tedious process of managing separate accounts spanning checking, savings and investments.

Ganu offered up a use case as illustration: The user who deposits a hypothetical $1,000 into their Finch account receives a Finch debit card.  The cardholder goes to Starbucks, swipes the card for a $5 latte — and the coffee is paid for by a fractional portion of the portfolio (which can be allocated between bond ETF or broader market ETFs). Ganu said the company funds the gap between spending and settlement.

“Your balance is always optimized. It’s working for you from day one, no matter the size of your balance,” he told PYMNTS, adjusted to keep the optimal portfolio mix, and where a long-term investing horizon would (ideally, with market gains) let balances compound over time.  In terms of keeping the portfolio mix, Ganu said, for that hypothetical $5 cup of coffee, with a 40 percent cash, 40 percent bond and 20 percent stocks blend, the transaction would take $2 out of the bond ET, $2 from the cash balance and $1 from the stock ETF, in order to keep the Finch account at the targeted mix.

Asked about regulation, Ganu said that the firm works with an FDIC insured partner bank and a SIPC partner broker dealer, Apex Clearing Corp.,  to ensure regulatory compliance.  Finch, he said, serves as the tech infrastructure that helps users connect those activities.

Finch said last month that it raised $1.8 million in seed funding to launch its platform, and is live with a waiting list of thousands of customers, according to Ganu.

Looking ahead at the company’s roadmap, he told PYMNTS that the company plans to scale into retirement products.

As Ganu noted, when it comes to reconfiguring the investment landscape, “it’s not about lowering the barriers. It’s about removing them altogether.”