How is FinTech changing the retirement plans of tomorrow?

How is FinTech changing the retirement plans of tomorrow?

by | Sep 9, 2022 | FinTech

Curated by: Sergio A. Martínez

If there is something the FinTech landscape is transforming at an unprecedented pace, it’s the way we look at our finances. From mobile apps that help us control our budget, to online platforms that make investing easier and more accessible for the average person, today we have more options than ever when it comes to managing our money, down to our retirement plans.

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And it’s not just individuals who are benefitting from these innovations either; businesses are increasingly able to take the opportunity offered by these technologies to streamline their financial operations. Whether it’s reducing the cost of processing payments or making it easier to access capital, new platforms and applications are helping businesses of all sizes to compete every day. And as the FinTech revolution continues to unfold, it’s clear that we’re only just beginning to see the impact that these companies will have on our lives and our future.

And our future is exactly what many FinTech companies are looking to improve, with more and better options for a specific need that is becoming more important each day: retirement plans. Access to retirement plans has long been a growing concern for many Americans, and FinTech startups are taking on this challenge, providing small businesses and everyday people with solutions and access that were previously out of reach.

“For many people, traditional retirement savings plans simply aren’t enough to provide the level of security they need in their golden years. FinTech companies are working to change that by developing products and services that can help people save more effectively for retirement. From automated investing platforms to personalized financial advice, the FinTech revolution is helping to make retirement planning more accessible and more efficient than ever before”, says Rod Aburto, Partner and Co-Founder at Scio. 

So, what are some of the key areas where FinTech retirement solutions could offer a new perspective? We’ll look into two sides: From the business side, where offering retirement plans are more affordable and convenient, and on a personal side, with tools helping to navigate the complex world of financial planning.

Overcoming a challenge

For a small business, the process of setting up and managing a retirement plan could be both time-consuming and expensive, even though there are many ways to make an impact in their employees’ lives, the biggest barrier to offering this benefit is the cost; setting up and administering a retirement plan can be expensive, and small businesses may not have the extra cash on hand to cover these expenses, especially when they are just starting.

 In addition, small businesses may not have the same negotiating power as larger companies when it comes to retirement plan providers, meaning they may have to pay higher fees. And yet another barrier is employee participation; for a retirement plan to be successful, employees need to be willing to contribute their own money. However, many workers are reluctant to do this, especially if they are already struggling to make ends meet. 

“One of the biggest obstacles to saving for retirement is the high cost of living. Between housing, transportation, and childcare, many families are struggling to make ends meet. As a result, contributing to a 401(k) can seem like an impossible task”, continues Rod Aburto. “It’s difficult for families to save extra money when they rely on credit cards and loans. However, it is still important to save as much as possible for retirement, which is why FinTech companies looking into retirement solutions can make a difference. Every little bit helps, and it is never too late to start saving.”

Moreover, some small business owners simply don’t feel like they have the time or expertise to set up a retirement plan, worried about making mistakes or being overwhelmed by the paperwork involved. Nevertheless, thanks to the rise of FinTech, there are now several options that are much more accessible for small businesses. 

For example, let’s look at Penelope, a “401(k) platform that gives small businesses an affordable and easy-to-use way to provide retirement benefits”, according to a profile published in Forbes. What this platform offers is a way for small business owners to set and automate different retirement plans, from pooled employees’ plans to more traditional 401(k), to even individual options for entrepreneurs to establish a strong corporate culture from the start, with minimal hassle. 

And that last point is crucial. What FinTechs are also enhancing with these retirement solutions is the culture of planning and long-term engagement among smaller businesses, helping build a better tomorrow for everyone.

A more personal touch: The rise of the robo-advisor

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Another side of the FinTech revolution, beyond helping businesses to offer benefits to their collaborators, is that retirement is also a personal choice on the part of the employee, but the necessary knowledge around this is often not very accessible to the average person, and making decisions on a very complex issue, like finance and investing, can be a daunting task. What could be done here, then?

“Arguably, robo-advisors are the most well-known of the FinTech innovations, which refer to automated online services that use computer algorithms to provide financial advice and manage customers’ investment portfolios. These products are increasingly targeting the retirement marketplace. The advent of a computerized approach to financial advice offers huge promise to provide people access to data they need to make smart retirement plans at very low cost”, explains a paper called “The Disruptive Impact of FinTech on Retirement Systems”, which sets to study the actual impact of these innovations in real people’s lives.

In this case, robo-advisors are a new breed of financial advisors that use algorithms and software to automate complex analyses of investments and financial risks. And unlike human advisors, robo-advisors don’t require you to set up an appointment or meet in person, generally with lower fees, making them a good choice for investors looking to be more careful with their bank accounts. 

So, while this technology is still fairly new, it could have a big impact on the way people invest in the future, especially when it comes to planning retirements and financial security for the future, changing the way the financial industry currently works. And this is without taking into account how a huge market for these types of services comprises 50+ people, who tend to have more financial experience, but less familiarity with technology, a challenging gap for many FinTechs looking into this space need to navigate carefully. The same study cited earlier says:

“…technological design should be driven by users’ needs. Accordingly, startups should consider how the older population interacts with technology and the unique concerns they have, versus millennials [and] considerations of culture and gender, which should help inform developers to create products that can be personalized for subgroups within the older cohort. Treating this population as one homogeneous group ignores important differences within this diverse population.”

So while the idea of making financial decisions based on the advice of a robot might seem strange, the combination of ease of use, data-driven approach, and accessibility with affordable prices offer an interesting alternative for people of any age and tech familiarity to make informed choices about their future retirement investments and opportunities. 

It’s time to start thinking of retirement not as an endpoint, but as the beginning of a new phase. With FinTech companies leading the way, we can look forward to retiring with more options and less worry. Have you started planning for your retirement yet?

The Key Takeaways

  • Retirement is an important issue for everyone and a financial area where the FinTech space can really make a difference.
  • Among the most notable innovations are platforms that make it easier for small businesses to offer retirement plans to their employees, improving their lives and engagement greatly.
  • Robo-advisors that can also help individuals make better financial choices are a great help to build retirement plants, thanks to their data-driven approach that makes it easier to weigh the best options.

Scio is an established Nearshore software development company based in Mexico that specializes in providing high-quality, cost-effective technologies for pioneering tech companies. We have been building and mentoring teams of engineers since 2003 and our experience gives us access not only to the knowledge but also the expertise needed when tackling any project. Get started today by contacting us about your project needs – We have teams available to help you achieve your business goals. Get in contact today!

Is the FinTech sector responsible for the financial education of its users?

Is the FinTech sector responsible for the financial education of its users?

by | Aug 25, 2022 | Entrepreneurship, FinTech, Technologies

Curated by: Sergio A. Martínez

FinTech has emerged as one of the most important aspects of the modern world, playing a crucial role in providing access to financial services and products to everyone and changing how we manage our finances. And there’s no doubt that FinTech apps and platforms have taken the financial world by storm, but as with anything, there are downsides to this popularity that are worth considering.

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What exactly is the FinTech sector’s role in modern financial literacy and education? Does this industry bear any responsibility on this matter, or their participation amounts to just covering a marketing demand?

“As our daily lives become increasingly digitized, more and more people are turning to FinTech solutions for their financial needs”, says Rod Aburto, Co-Founder and Service Delivery Manager at Scio. “From mobile apps that offer budgeting tips to online lenders that help individuals finance their businesses, FinTech companies revolutionized the way we think about personal finance. But as FinTech continues to grow in popularity, some are wondering whether they have a responsibility to provide financial education to their users.”

On one hand, many argue that FinTech companies are simply providing tools and services that users can choose to utilize as they see fit. And just like users of traditional financial products can make bad decisions that lead to debt or financial instability, so can users of FinTech products. As such, these companies should not be held responsible for the financial education of their users. On the other hand, some argue that FinTech companies are responsible for providing financial education to their users. After all, these companies often market themselves as alternatives to traditional financial institutions, which typically offer their customers some form of financial education. Furthermore, many FinTech applications are designed for people who may not be familiar with personal finance concepts, making it even more important for these companies to provide clear and concise information about their products, so what happens when people use them without really understanding how they work? 

Poor financial literacy can lead to serious mistakes, like overspending or making poor investment choices, creating a lot of financial anxiety or even worse outcomes. So, while FinTech apps can be helpful, the users must adopt this technology responsibly, understanding both the risks and rewards before getting started.

Financial literacy in the FinTech era

“Financial education has become an important complement to market conduct and prudential regulation and many countries have made improving individual financial behaviors a long-term policy priority”, says Simon Pearson of the Investment and Finance site HedgeThink. “In a world dominated by continuum technological advances, the efforts towards financial education shouldn’t be limited to economic affairs but rather focus on mastering the technology that will drive the financial mechanisms of the future.”

So as FinTech companies increasingly play a role in our financial lives, it also has a responsibility to help educate people about personal finance, budgeting, and investment strategies, as well as the nature of the financial services they offer. We can break it down into the following categories:

1) Marketing. FinTech companies need to be careful about the way they market their products. In a rapidly developing industry like FinTech, it can be difficult to keep up with the latest marketing trends, but there are a few key principles that all responsible FinTech marketers should keep in mind. First and foremost, always be transparent about your product or service. With so many options available, potential customers need to know exactly what they’re getting before they commit. Secondly, don’t make promises that you can’t deliver on. And finally, always put the customer first, remembering that you’re not just selling a product, you’re solving a problem.

2) Security.  When it comes to FinTech, data security is essential. FinTech firms deal with sensitive customer data daily, so it’s crucial to secure it, making it accessible only to authorized personnel. But beyond that, it’s necessary to make it clear to the user what information is getting stored, explain why, and have clear means of communication and support if any serious problem arises. “FinTech firms and their customers are often targets of all kinds of attacks and frauds, so it’s important to have robust security systems in place to protect against these threats and inform the public of the potential risks involved”, advises Rod Aburto on the matter.

3) Communication. FinTech companies provide a valuable service to their customers by giving them access to financial products and services that they might not otherwise have. However, FinTech companies need to communicate with their customers regularly to ensure that they are providing the best possible service. Customers need to be able to reach out if they have any questions or concerns, and they also need to be kept up to date on changes that could affect their accounts. Good customer communication can help to build trust and loyalty, and it can also help to resolve issues before they become major problems.

The limits of FinTech education

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However, beyond these good practices, it’s good to keep in mind that, while FinTech has made it easier than ever to access financial education, there are still some limits to what it can provide. For one thing, FinTech products can be a great resource for learning about financial products and services, but it can’t provide professional financial advice when it comes to making major decisions. These kinds of applications can provide people with the tools and knowledge they need to make informed choices regarding their money, but it is always best to speak to a qualified financial advisor that could provide a good outside perspective.  

Additionally, FinTech can be a great way to learn about personal finance basics, but it’s not always the best resource for more complex topics. Many people view financial education as a dry and boring topic, and with the rise of more and more FinTech platforms and applications, there are now more ways than ever to learn about money management, but a lot of the responsibility of making an informed decision and assuming the ensuing risk still rests on the shoulders of the customer, so seeking information with a trustworthy source is still the way to go. 

Despite these limitations, FinTech is still a valuable resource for anyone looking to improve their financial literacy. This is still a relatively new industry, and it’s constantly evolving, which means that there are bound to be some growing pains as the industry matures. So, while FinTech can be a great resource for managing your finances, as a user it’s important to be aware of the risks and limitations of these applications; they are often created to offer a solution to a particular problem, but they are seldom meant to be the be-all-end-all of every financial necessity. 

And as a company, having an adequate ethical framework to approach the creation of a new FinTech platform, informing users and customers clearly of what they should expect, what they can’t do, and the basics they need to understand to make the best use of the product is a must. With these considerations, FinTech companies can help make sure that their products are safe and helpful for everyone.

The Key Takeaways

  • FinTech applications and software are becoming more and more relevant to our daily life, making it easier than ever to get started on a new financial road.
  • However, this abundance of options and innovations also brings new questions to solve: is financial education becoming a responsibility of FinTech?
  • Even if that’s still an open question, there’s no doubt that most FinTech companies can adopt practices (in Marketing, Security, and Communication) to ensure their products are not misunderstood or used incorrectly.
  • And finally, a deeper understanding of finance still falls on the shoulders of users, who should seek knowledgeable and trustworthy people to make sure they use any application or platform to its fullest.

Scio is an established Nearshore software development company based in Mexico that specializes in providing high-quality, cost-effective technologies for pioneering tech companies. We have been building and mentoring teams of engineers since 2003 and our experience gives us access not only to the knowledge but also the expertise needed when tackling any project. Get started today by contacting us about your project needs – We have teams available to help you achieve your business goals.