The fight for fintech customers

The study, which surveyed 2,016 digitally active Canadians to learn more about their fintech use, also found that 8.2% of these Canadians have used two fintech products within the past six months. This figure puts Canada behind the U.S. (16.5%) and the U.K. (14.3%) in adopting fintech and pales in comparison to Hong Kong, which topped the list of fintech use (29.1%).

But fintech use among high-income earners across different demographics may grow significantly in as little as a year, states the report. For example, 27.3% of millennials between the ages of 18 and 34 who earn more than US$150,000 a year called themselves fintech users. However, another 54.5% intend to use fintech within the next year.

Millennials’ sensitivity to fees and preference for pared-down services are likely to contribute to this growth, says Gregory Smith, partner in E&Y’s financial services advisory practice in Toronto. This is the generation that looks to companies such as Airbnb Inc. because travellers in this demographic cohort feel they need only a bed when they travel.

“You can’t take that attitude and take it into wealth management and say, ‘But I’m sure they’re going to want to pay 2.5% to [a financial] advisor,'” Smith explains.

The E&Y survey also found that growth in fintech use could triple among people who are 55 years old or older and earning more than US$150,000. Only 16.7% of these older, more affluent Canadians were defined as current fintech users, but 50% of that group said they will use it in the near future. This group is moving into the deaccumulation phase and they might question exactly how much personalized advice they truly need, according to Smith.

However, the study’s data does not mean that fintech companies will definitely experience runaway growth in the near future. That’s because they face a different kind of hurdle. More than half (57.2%) of digitally active Canadians participating in the E&Y survey stated they do not use fintech because they don’t know it exists.

And that is a situation that may take some focused effort to change; most consumers still are far more familiar and comfortable with traditional financial services institutions, which have deep pockets and brand resonance on their side, notes David Furlonger, vice president and research fellow at technology research firm Gartner Inc. in Toronto. “I’m not saying it’s going to be impossible for [fintech] firms to [increase awareness], but it’s going to take time, effort and money.”

Lack of knowledge regarding fintech options is the largest obstacle to increased use of those options, admits Randy Cass, CEO of Toronto-based robo-advisor Nest Wealth Asset Management Inc. The company does not invest in big-budget advertising, but increases awareness through the media, website content, word of mouth and social media. Cass’ efforts include a partnership with Mississauga, Ont.-based Metroland Media Group Ltd., through which Cass promotes his brand via the media company’s digital and print properties.

Fintech companies do have the upper hand in at least one area: usability. The most popular reason to use fintech, according to 43.8% of Canadians surveyed by E&Y, is because setting up an account is easy.

Traditional financial services institutions are going to have to find ways, such as a digital onboarding system, to increase the convenience factor if those companies want to attract digitally savvy investors, says Smith.

For advisors, the good news is that such onboarding systems may help to promote their businesses. “[Using fintech] the advisor is more efficient and can handle more clients because [the client has] done some of the [preliminary] things online or on an app,” says Smith.

But traditional financial services institutions also have to create a corporate ecosystem that goes beyond traditional financial products, says Furlonger. For example, a firm could use data analytics to gather clients’ details, such as favourite vacation spots or lifestyle products, so that the firm can connect clients to companies that would provide convenient access to those things he says: “Ironically, the banks and wealth management companies could do this [already, but] it’s just not how they think of their products and services.”

The second-most popular reason for fintech use is lower cost, which was cited by 20.4% of Canadians surveyed by E&Y.

Cass believes that figure will grow as fintech is adopted more heavily by older users. “I honestly believe [account opening convenience] has to pale in comparison to the hundreds of thousands of dollars that you’re going to have in your account when you retire that you wouldn’t have if you didn’t switch,” he says.

E&Y’s Fintech Adoption Index included the responses of 2,016 digitally active Canadians among a total of 10,131 respondents from six nations. Fintech users are defined in the survey as individuals who have used two or more fintech products in the past six months. The survey was conducted between Sept. 1 and Oct. 6, 2015.

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