Applications of personal finance in the age of financial technology, intangible money and Covid-19

Georgios Panos

Professor of Finance Adam Smith Business School

University of Glasgow

On February 12, 2020, Forbes magazine published a list of the 50 most innovative financial technology companies (FinTech). Reading the list of US companies / applications shows the particularly interesting observation that at least 12 of the 50 most innovative Fintech companies operate exclusively in the field of personal finance.

It is worth noting that other companies on the list, e.g. Addepar, which is classified differently, has activities related to personal finance that require skills and provision for financial literacy. The most specific observation of the companies shows that they started with the aim of filling gaps in the banking and investment market. They specialize in specific products that are relevant to the goals of responsible banking. However, they have not specialized in the part of financial education of online users, and this – if left unattended – may turn into a brake on improving consumer well-being through financial technology applications.

1. With 6.8 million users, Acorn is a technology application / platform that charges $ 1 a month to move leftover purchases from the debit and credit card markets to negotiable mutual fund packages. With slightly higher charges, it shifts the difference from the purchase change to retirement packages. The company is adding to its menu more and more savings and investment applications based on the automatic retention of small amounts from the market leftovers.
2. Affirm is active in the online consumer loan market and works with more than 4,000 websites, including Casper, Expedia, The RealReal, Walmart and Wayfair. In 2019, it contributed $ 4 billion in loans. It offers direct loans with a fixed interest rate when completing an online purchase on the participating pages. The loans are short-term, ie 3, 6, and 12 months, without intermediation charges and with an annual interest rate of between 10% and 30%. The interest rate is based on the consumer’s personal data, such as recorded creditworthiness. Some partner websites provide loans with a 0% interest rate.
3. Chime online bank gives face-to-face accounts free of charge, by selecting the rounding of purchase and deposit amounts and the automatic deposit from the change in the savings account. The exclusive – via mobile – online bank offers a debit card, the possibility of overdraft without charge up to $ 100 and access to payroll by 2 days earlier.
4. Credit Karma has about 100 million users in the US, Canada and the UK. He is active in the field of personal consulting for the purchase of credit cards, personal loans, home loans and car purchase, as well as car insurance. Charges customer referral fees to loan and insurance providers. It provides free credit confirmation and monitoring services and most recently added tax returns to its service menu, as well as high-performance savings accounts.

5. Dave has more than 5 million users and $ 90 million in profits in 2019. With a banner advertising banking for people, it charges $ 1 a month to offer face-to-face accounts without minimal deposit and overdrafts, automatic home budgets, cash credit up to $ 100, and the ability to improve creditworthiness by automatically recording rental expenses and utility bills in credit offices.
6. Lively has $ 200 million in user accounts and has doubled in size since last year. The company is active in digital savings accounts for health savings. It offers investment opportunities to employees, through TD Ameritrade, for the money withheld before tax for future medical expenses. Employers contribute $ 2.95 per employee per month. The company will add flexible savings accounts to its menu in the near future.
7. Money Lion is an online bank with over 6 million customers. It is aimed at small and medium-sized families with an income of about $ 50,000 per year and offers free face-to-face accounts, debit cards, payroll advances (by direct deposit), as well as packages managed by mutual funds. With an extra charge of $ 19.99 per month, it offers rewards programs for refunds to the account, free access to credit rating indicators, and small loans to strategically improve users’ credit rating.
8. Nova Credit announced its partnership with American Express in 2019, with the aim of automatically providing an AMEX card to immigrants from Australia, Canada, India, Mexico and the United Kingdom. It is the first application of the so-called credit card passport, based on homogeneous credit card information from 8 countries, corresponding to the FICO index in the USA. It allows young immigrants in the United States to access financial products and rent real estate, based on their creditworthiness in the country of origin.

9. Propel has doubled its users to 2 million in recent years. It allows food receivers to control the rest without having to call the relevant number for a fee. It allows them to redeem online store coupons, search for job postings and communicate electronically with social services. A related study shows that users of the app extend the duration of their food coupons by one day a month through the use of the app.
10. Tala is active in the microcredit market for between $ 10- $ 500 to customers from developing countries, with no particular credit history, using mobile phones to assess risk and taking into account the timely payment of mobile bills, as well as social relationships. of applicants with their parents by telephone. It has lent more than $ 1 billion in loans to 4 million customers, and is profitable in Kenya, the Philippines, Tanzania, Mexico and India, among others.

11. Tally provides credit card debt relief services and repayment applications, as well as an extension of the credit line with a lower interest rate than a standard credit card. Provides support to cover minimum monthly payments to avoid late payment penalties. It also undertakes to repay in arrears the debts that incur the highest interest rates. The company enjoys maintaining 99% of its customer base continuously and increased its revenue 4 times in the last year.
12. Since 2012, Upstart has provided $ 6 billion in loans to more than 400,000 borrowers through the five partner banks. The online lending platform uses artificial intelligence techniques and alternative indicators, such as user education and work history, as well as more conventional credit rating and revenue indicators to lend personal loans. The company claims that 70% of grant decisions are fully automated and that its approach is effective in terms of risk management, especially in terms of avoiding losses from loans to borrowers with low contractual creditworthiness.

Observing the websites of the leading companies, one finds that few have invested in providing education and knowledge about personal finance and the use of financial products to their users. It seems, therefore, that even in the most successful cases of new fintech companies, the great question of welfare for financial literacy has not been incorporated. As an example, actor Will Smith and his brother invested in a new company, Step, which raised $ 22 million to prepare applications that teach financial literacy to teens. The app gives teens access to bank accounts free of charge and provides savings incentives. Parents have the ability to monitor the use of children’s accounts, and set limits and restrictions on use in young people under 18. The application also provides counseling services to young people on money management. The actor, along with the company’s founders, launched a major campaign, acknowledging that schools do not provide children with substantial knowledge of financial literacy. The big vision of the supporters of the effort is to teach financial responsibility to the next generation of adults, who will be called upon to live in an age of limited cash use. According to the founders, conventional banks have so far not operated with the aim of protecting consumers and specific indicators and objectives of social responsibility.

Such efforts become even more important in the emerging revelation scenario after the closure and gradual controlled reopening of the world economy in the Covid-19 era. The new era involves a new work landscape with great risk for jobs in specific industries. It involves the inflating of chronic debt problems in many national economies, but also in companies and individuals. It includes the need to find innovative financial instruments and political will for agreements at the supranational level, such as in the European Union. It has new opportunities to find innovative solutions in the fields of entrepreneurship, new technologies, remote work, tele-education, as well as e-government. Finally, this new landscape also demonstrates major weaknesses in terms of personal finance in large sections of the world’s population. Recent research by international organizations has shown that nearly 3 in 10 adults in the United States do not have emergency savings, according to a new financial security indicator. 1 in 4 has capital for a difficult time, and the rest do not have enough money to cover the living expenses of 3 months without guaranteed income. To meet the basic needs of a segment of the population, US government governments have set up the institution of capital for a difficult time. Relevant research is completely missing in the European Union in terms of personal finance, although there has long been a strong debate about the need to raise funds for a difficult time at the national level. Such an institution would, of course, require a revision of the Maastricht Treaty.

Therefore, the new landscape in the Covid-19 era involves enormous changes and potential difficulties at work and personal financial levels. But there are also huge opportunities. These opportunities are part of start-ups that will try to fill the gaps in national and international money markets. It is in the context of understanding existing and empirical problems concerning specific groups of the population and trying to provide a new service to solve the problem. The new era also offers enormous opportunities for tele-education. Skills that were not traditionally offered in national education systems and for which there was no wide range of educational material and opportunities for lifelong learning and training of teachers and staff can be covered by new platforms and applications with material capable of being offered on a large scale and low cost. A new training program that will focus on new humanities skills in the age of artificial intelligence, robots and the new industrial / technological revolution has much to gain from human literacy skills, such as financial literacy and the possibilities of a comprehensive supplementary education program. -education.

In Greece, it is worth noting efforts to strengthen the financial literacy of young people in a generation that will live with financial technology and limited cash use. The Hellenic Institute of Financial Alphabetics (https://www.gfli.gr/) has been active in recent years with activities, events, printed, printed and published material, addressed to specific sections of the population, such as the younger generation, parents who As soon as they have children, women who, according to international studies, have lower levels of financial literacy, as well as economic migrants who are objectively facing greater integration problems. He has been a staunch supporter of the European project PROFIT (www.projectprofit.eu), which has prepared an interactive online platform for financial literacy, awareness and competence, as part of the Horizon 2020 program (https://platform.projectprofit.eu/). The PROFIT program has been identified by the European Union as a program to support open democracy, as it contributes to the important social goals of customer protection and the social performance of ethical and alternative financial institutions by improving financial literacy.