Incubating Millennials’ Nest Eggs
- Reuters reports that Snapchat may offer its 100 million daily users robo-advisory services to manage their portfolios.
- Robo-advisers provide automated, algorithm-based portfolio management advice without the use of human financial planners.
- Major firms like Fidelity and Vanguard have entered the robo-adviser space alongside startups like Betterment and Wealthfront.
With 100 million daily users, Snapchat is a social media giant. If the rumors are true, it is poised to make a move to become a financial services giant as well.
Snapchat is reportedly eyeing entry into the robo-advisory services space, in which algorithms—not people—analyze a customer’s financial portfolio and offer advice on how to maximize returns or plan for retirement. Robo-advisers can be used to build, manage or rebalance portfolios, and they are growing in popularity because of their extremely low cost. Lately, big firms like Vanguard and Fidelity have gotten into the game, but Betterment and Wealthfront are the best-known names in the industry today.
How this might work is subject to speculation—Snapchat did not respond to a request for comment—but pragmatically it is likely to involve some kind of partnership with a more recognized financial brand, says Scott Amyx, managing partner of Venture1st, a startup consultancy.
“It’s suspicious in some ways,” Amyx says, “as Snapchat is mostly built for entertainment, so to do something more serious they have an uphill battle.” He envisions Snapchat offering its users subscription services to a bank or other financial institution, which would then use robo-advisory technology to analyze linked portfolios. It’s also possible that Snapchat could build or acquire its own robo-advisory AI and attempt to evolve the Snapchat brand directly into this space, as it has with its Snapcash peer-to-peer payment service.
“Millennials communicate via social apps and increasingly want to complete commerce transactions via these apps. The banks simply have no way to create a relationship that can connect with millennials.”
— Scott Amyx, Managing Partner, Venture1st
Big Banks, Dwindling Fortunes Among Millennials
What’s preventing big banks and investing firms from pursuing strategies like these directly? Simple: Millennials are leaving traditional, large banks in droves.
“[Millennials] don’t want to deal with the banks,” Amyx says. “Many millennials don’t even own credit cards. They communicate via social apps and increasingly want to complete commerce transactions via these apps. The banks simply have no way to create a relationship that can connect with millennials.”
For traditional banks, millennials haven’t been a major target in recent years for one simple fact: They’re broke. That’s slowly changing, of course, as millennials move up the income ladder through the sheer force of time and inheritance windfalls. Here, says Amyx, the financial services firms find themselves in a real predicament. “When someone passes away, those customers may take millions of dollars out the door—and the bank collects no fees,” he says. “Kids just don’t want to have a relationship with their father’s financial adviser.”
A Question of Trust
Is it far-fetched that a company best known for its disappearing message service could realistically make inroads into something as sober and serious as money management? Not necessarily. According to new research into millennial consumers’ habits, 73 percent of those surveyed would be more excited about a financial offering from a trusted brand—PayPal, Square or even Google and Amazon—than from their bank. Though the research didn’t cite Snapchat, scores of millennials are already using the app to send money via Snapcash.
But the challenge will be parlaying that trust and familiarity into a profit, while meeting the regulatory and compliance thresholds required of any company providing financial services. (Last year, the SEC officially warned investors about the risks and limitations of robo-advisers, and regulations of all advisory services have been steadily increasing since the financial meltdown of 2008.)
Stephen Alred Jr., a financial planner and founder of Ignite Financial, notes that the big problem in the robo-advisory space is simply the limited amount of commission that customers can be charged. “Traditional robo-advisers have to have an extremely high assets-under-management requirement just to break even,” he says. “I do not believe Snapchat will disrupt financial services any more than its predecessors in this space. Traditional firms are picking up on what Betterment and others are doing and have begun to adjust accordingly.”
Refer to the full article on WIRED | Rewrite. Published on March 16, 2016. Author Christopher Null.
