How do millennials tick? This question is as good as any financial institution worldwide these days. It is clear that digital natives have different needs and values than their parents. But which? An anecdotal inventory.
It is one of the slogans of our time: the Millennials
On the one hand, they are reprimanded for short attention spans, exasperated narcissism and excessive claims. On the other hand, they are valued for greater sustainability efforts, less pronounced ownership and a greater sense of fairness. Whether Generation Y, Z, Google Kid or Digital Native: They are the generation (s) of the future and are just beginning to build assets.
But in the digital world, where developments often progress exponentially and the future soon becomes prevalent, banks, insurance companies and other financial service providers want to know as much as possible, as these boys think. After all, they are the customers of tomorrow. But unlike the collective term Millennials suggests, not all Millennials think the same, they also interpret the role of the banks differently. Nevertheless, some patterns are recognizable.
Cacophony of the crisis
A mantra that accompanies younger generations almost all their lives is that of crisis: financial crisis, environmental crises, social crisis. In particular, the youngest – Generation Z – will grow up in a period of time when they are latently sounded out by the background noise of the long overdue next financial crisis. At the same time, the younger guard is confronted today above all with high real estate prices, but also with average expensive stock and bond prices.
It is not uncommon to read in blogs and newspapers about how a home, more and more frequently, but also the attachment to the financial markets more and more young people seem unattainable. That a cited study by the Boston Consulting Group draws a pessimistic future scenario is therefore hardly surprising: According to the consulting firm, just 13 percent of those surveyed believe that the next generation will fare better than themselves.
With the bankruptcy of Lehman Brothers, a real crisis materialized. However, this 2008 recession was not really decisive – at least not in Switzerland. But even where the crisis hit hard, the economy recovered, and financial markets even set to new heights.
Glorious future
Zaniyar Sharifi sees it more positively. In many ways, the prospects for young people are better than ever, says the deputy chairman of the think tank Redesigning Financial Services at the University of St. Gallen. As part of his work for the think tank, he keeps coming in contact with millennials and their vision of the future. A vague fear of a worsening world, he seems hardly read from their votes. And he himself is not afraid. “Of course, the danger of a recession, of a trade war or of political hardships by populist currents is real, but fear is always a bad adviser. Such shocks do not change the fact that after a step back we go three steps forward”.
A similar horn blows Pascal Caversaccio. He is co-founder and president of Alethena, a crypto startup focused on tokenizing stocks. He does not believe that young people will no longer be able to successfully participate in the financial markets due to overpriced prices. Caversaccio sees a great opportunity for democratization and expansion of the investment universe, above all in the digitization of the capital market.
Investing becomes easier
The fears expressed by young people over and over again, according to which the traditional financial industry is too closed, in some cases almost elitist, can not be completely dismissed today, according to the 29-year-old entrepreneur Caversaccio. This would be remedied by the just beginning tokenization of securities, thanks to which investments of all kinds such as SME shares or start-up investments for the average citizen would be investable. This results in a significant expansion of the investment universe and enables anyone to invest in the financial markets without the help of large intermediaries.
The democratization of the financial world began with the emergence of passive investment products such as indices and ETFs. Thanks to this vehicle, investors can participate as cheaply as never before in various financial markets, with a few ETF one is also globally diversified. The possibility of passive investing has triggered this first wave of democratization. Today, Fintech start-ups are advancing them with Robo-Advisor, banking, trading and retirement apps, said research assistant Sharifi.
As he knows from his own experience, these new innovations – Robin Hood in the USA and Viac in Switzerland – allow investors to invest as little as CHF 100 and at unbeatably low fees. Even small investors – these include the boys mainly – could thus invest in the most complex investment products. “We’re just at the beginning here,” says Sharifi. “In ten years, as a simple worker, you will be able to invest in 99 percent of the assets that today are only available to billionaires”.
The investment universe of the future
One of those fintechs that has taken the simplification of investing on the flags is Simplewealth. For Founder Jeremy Cohen, it’s clear: “Next-generation financial services need to be fast, transparent, accessible, cost-effective and digital – cards, card readers and other physical financial assets are outdated.” His interaction with young clients has led him to believe: simplicity and simplicity Ease of use – the entire customer experience – is crucial today. It also implies that a financial service does not have arbitrary fees but clearly stated prices.
Pascal Caversaccio also dreams of such a world, which he believes to become more and more reality: “In my mind’s eye, I already see today a global, digitized and efficient investment universe that allows me to use my mobile phone to work in a company. B. to invest in Papua New Guinea. In this new world of finance, the primary and secondary markets will have grown significantly and sustainability will play a much more important role. Every investor will have their own, low-cost, and financial market compliant i-funds”.
Values in change
This development should also benefit from the change in values that is being driven by the boys. Jeremy Cohen of Simplewealth also notes that millennials tend to focus on portfolios with the least possible ecological footprint. It is still consumed at a high level, but it is happening today environmentally conscious. The same applies to Redesigning Financial Services: “The young generation is heavily driven by value. We do not like investing in Glencore or Nestlé. We also do not like to work for such companies. The more talented job starters have too many opportunities to accept such jobs”.
That low fees today represent one of the most important decision criteria may well be interpreted as a contradiction to the idea of sustainability. Or is the high cost sensitivity of the digital generation perhaps simply the result of the free culture that they experience on the Internet every day?
It is not true for think tank chairman Sharifi that young students do not want to pay anything. Apart from the fact that sustainable investment products do not have to mean lower returns, many young investors are likely to be willing to pay extra for sustainability: “We are doing too well to abandon our principles for a little return,” speculates Sharifi. On the other hand, sinking is the expense of providing services that are overpriced due to obsolete technology – while other offers are not just more customer-friendly, but cheaper or even free. “A bank must be able to tell me an ingenious story there, so that higher fees seem justified”, so the young graduate’s conclusion.
Like Jeremy Cohen and Pascal Caversaccio, Zaniyar Sharifi also has a positive view of the future. Zero interest rate environment, resinous economic growth, worldwide over-indebtedness: sticking one’s head in the sand is not a solution for any of the three experts. Nevertheless, the question must be allowed: what if your own optimism dazzles too much? What if the abundance of start-ups and the trend towards zero costs are, above all, a consequence of the monetary interventions of recent years?
So there is the argument that it is mainly the artificially low interest rates that have led the economic actors to projects and investments. If the interest rates and thus the refinancing costs are low, it is lucrative to start a start-up. Likewise, it will be attractive to unavoidable for banks and other established companies to financially support such projects as the returns on traditional investments are rather low.
Just no false cockiness
This argument is anything but absurd. Matuschek is a lawyer, publicist and founder of the crypto start-up Eternitas, which aims to simplify the execution of the will and place it in the hands of the individual. He does not exclude that behind the up-and-coming startup development of recent years, in part, even cheap money. The money may not just be thrown to the start-ups, but in times of monetary expansion it is easier to get funding. Matuschek therefore sees the credo, according to which the boys today have every opportunity, open. What is currently self-evident could not work tomorrow, he warns. Matuschek refers to the famous example of the turkey, who is happy every day about the farmer feeding him for years. And then, right on time for Thanksgiving, he is killed.
The startup euphoria has been dampened by a 2016 study when MIT researchers reviewed the economics of CleanTech start-ups. The results were sobering: between 2006 and 2011, investors lost over 50 percent of their invested capital of $ 25 billion. Not a single company could generate a positive return on capital. Other sectors, such as the fintech sector, have not been studied in detail, but only as a comparison. Even here, returns were minimal. After all, fintech start-ups were able to prevent capital loss through successful exits on average. However, the question remains: if even in a phase of virtually unlimited central bank liquidity, positive returns on capital are rarely achieved, what happens when that liquidity goes down?
The quote from Jeff Bezos is: “Your margins are my opportunity”. Many start-ups seem to pursue this business model. Like the Techgigant in the past, most startups today are barely profitable. That only one out of every ten start-ups survives is a myth, if you want to believe the statistics. The reason why, at present, the survival rates of start-ups is higher and longer than expected may also be the result of zero interest rates.
Risk system change?
The zero-interest economy has greatly distorted economic conditions, Matuschek argues, and these are ultimately an inherent consequence of our financial system. Without fundamental change, he believes, we will hardly be able to prevent the collapse – not even the younger generation. For systemic problems, all efforts to make the system piecemeal are in vain. For Matuschek, this approach is irresponsible because it’s risky, so a fundamental change is inevitable.
For Jeremy Cohen of Simplewealth, however, a system change carries too much risk. And PhD student Sharifi does not believe that a change in such a highly complex system is even possible. “It may be true that our system has inherent flaws. But we only have the option to improve the system bit by bit. Here a little less fees, as an et-better customer service. Hopefully, the result will be a more efficient and robust system. “As an advocate of blockchain development, Pascal Caversaccio sees the main problem as being that the financial system needs trust relationships to remain stable. But that would be more and more often shaken. It is important to find ways with the technologies available today that enable security and participation without the need for interpersonal trust. So-called antifragile, “trustless” solutions would offer the greatest opportunities here, according to his conclusion.
In fact, the world may be so diverse for young people today, but more fragile than ever before. The fact that the millennials, in contrast to their homogeneous designation, still think heterogeneously confers confidence.