Our Fintech Future | Next Avenue

Editor’s note: This is the first of two articles marking the 10th anniversary of financial technology, or fintech, and discussing innovations that could change how we interact with money. This article covers the automation of routine services and the rise of digital financial assistants using artificial intelligence.

In many ways, 2022 marks the 10th anniversary of the fintech phenomenon. While companies like E*TRADE, Rocket Mortgage and TurboTax all began disrupting the established financial services market well before 2012, that was the year fintech emerged as a sustained movement that markedly changed how most consumers manage their money.

A flurry of startups founded shortly after the 2008 financial crisis began to go live, venture capitalists began investing in droves, and the media and established industry became aware of the fintech phenomenon. LearnVest, a financial planning company, was one of those startups.

“I started LearnVest in 2008 when the Great Recession made me realize how urgently we needed better financial tools and technology,” said Alexa von Tobel, the company’s founder and a founding and managing partner of investment firm Inspired Capital.

“It took a few years for the startups that were founded in the wake of the financial crisis to really take off and for the wider industry to start to take notice,” she added. “It’s amazing to think how far fintech has come.”

Unicorns and robots

Indeed, a decade later, fintech has evolved from a buzzword for smart startups to a phenomenon embraced by major publicly traded companies. Fintech has grown to include over 100 fintech “unicorns” (relatively young companies estimated to be worth $1 billion or more) around the world that offer online platforms with a full range of financial products.

In retrospect, established banks, brokerages and other financial services firms helped make this success and growth possible by becoming overly comfortable with their market positions and neglecting innovation.

Now that these firms have woken up to the threat posed by the convenience, speed and lower costs of fintech competitors, it’s a good time to look ahead and envision what fintech will look like in another 10 years.

To do this, I interviewed more than a dozen of the company founders and executives who helped build the technology behind fintech’s first decade. Founders blend creative thinking and lived experience with an understanding of technology’s limits. They provide a realistic perspective on what the future holds.

Automation of daily services

Despite a decade of progress, fintech has yet to truly “automate” our financial lives. Households still have to keep track of many routine financial activities such as paying bills, budgeting, reviewing credit card statements, tracking investments, paying taxes and collecting government benefits. Many also monitor relatives’ finances and help elderly relatives manage their finances.

Today, services exist to help consumers with these routine tasks, but they are usually stand-alone products. For example, Bobby, Dyme and Truebill manage subscriptions; Carefull, EverSafe and True Link Financial keep track of the finances of elderly relatives and dependents; Daffy and Give handle charitable donations, Propel helps government assistance recipients track benefit payments, and robo-advisors can manage cash balances or help with tax strategies.

Why hasn’t the financial sector been able to better automate customers’ entire financial lives? Outdated technology. Most financial services firms rely on a mix of vendors and software built 20 to 40 years ago.

Obstacles to progress

“I would estimate that our engineers used to spend seventy percent of their time integrating with old legacy systems — time that could have been spent building client-facing features,” said Simon Roy, founder and former CEO of software maker Jemstep for financial advisors.

Over the next decade, he added, financial services providers will adopt new software, improve communication between programs and refine their data. The purpose is to enable fintech companies to simplify your financial life by automating tasks that can be done on your behalf.

This can include notifying you of upcoming deadlines and monitoring accounts for you and your family, among other important but mundane tasks. The goal is to minimize the amount of time you spend thinking about money.

Automating your routine financial needs and modernizing industry infrastructure go hand in hand with another big change in the coming decade – a financial assistant powered by artificial intelligence (AI).

What can AI do for you?

Today, leading fintech firms offer online access to a wide range of financial products without the need for large networks of branches or face-to-face meetings. However, the current online user experience is oriented towards viewing accounts and balances. Consumers need more sophisticated information, such as advice on making financial decisions in the face of competing financial goals and a limited budget.

The effect the increase in AI-based assistants will have on jobs in the financial industry is unknown. It can accelerate the decline of some roles (such as bank tellers) while helping other roles (such as financial advisors) to become more efficient.

What is the current state of AI? Firms such as Trim, Cleo and Digit offer computer programs called chatbots (designed to look like online chats with a representative of the firm) that answer relatively simple questions about a client’s budget and expenses. They do less well with amorphous questions and financial decisions.

AI still has a lot to learn

Here’s an example of a complex question someone might want to ask an AI assistant: “I think I need to buy a new car this summer. If I bought a car and the family took a vacation like we did in August, how would that affect my economy?”

This example of a more unstructured question requires a more sophisticated financial planning AI capable of examining the costs of certain activities as well as the user’s spending habits, goals and liquid assets. In the coming decade, better AI technology – as well as the previously mentioned improvement in technical infrastructure – will make this kind of advanced AI assistant possible.

Forecasts for the wider use of better AI are not meant to suggest that all people currently working in financial services will be out of a job.

“Money is the most emotional thing on the planet,” said Bill Harris, former CEO of PayPal, Intuit and Personal Capital. “It’s hard for an AI to handle the nuances of human emotions. There will always be a place for the human touch.”