‘Sobering’ report shows increasing reach of fintech over traditional firms

About a quarter of Americans have tried a tech-based savings or investing service, and companies with scale are getting the most business, a report from Hearts & Wallets finds.

Across America, people are twice as likely to know about fintech firms like Robinhood and Chime than they are to be aware of the latest services from well-established companies like JPMorgan, Goldman Sachs, Fidelity and Vanguard.

While 40 percent of US households have heard of Robinhood, and 39 percent of Chime, only 19 percent were familiar with J.P. Morgan Wealth Plan, 15 percent with Goldman Sachs’ Marcus business, 14 percent with Fidelity Go and 13 percent with Vanguard Personal Advisor Services, according to data published Wednesday by consumer research firm Hearts & Wallets.

The findings, Hearts & Wallets CEO Laura Varas said, are “sobering.”

Overall, 80 percent of people are aware of tech-enabled saving and investing services, more than double the 36 percent who knew of their existence in 2015, the firm found. However, 69 percent of people said they recognized fintech brands, versus the 59 percent that were aware of the newer services provided by traditional financial services companies.

There are some aspects of the trend that financial advisors should note, Varas said. While newer entrants to the fintech world tend to focus on saving, cryptocurrency and lending, incumbent firms spend more energy marketing their investment, planning and human-advisor services.

With interest rates at a 20-year high, cash has been the driving force for people looking for account providers, she noted.

“There is a lot of excitement and awareness around that,” Varas said. “It can be hard to fully understand. Going back to normal interest rates changes the calculus for a lot of [consumer] decisions.”

Over the past decade, “living in a zero-rate environment encouraged us to overspend,” she said. Getting rates of around 5 percent on cash products, while avoiding the volatility of the stock market, is thus really attractive to people. If the concept of earning interest on cash isn’t something financial advisors are already emphasizing, they should consider that in their messaging, Varas said.

The report, which examines 55 tech-based financial services, is based on survey data collected from more than 5,800 people in September and October, as well as information from Hearts & Wallets’ database.

Although awareness of fintech services is higher than ever, that doesn’t mean people are rushing to be customers – instead, they’re dabbling, according to the report. When people try robo-advisors, about 70 percent of them have account balances of less than $25,000, data from the firm indicate.

Of the 40 percent of households that were aware of Robinhood, 15 percent of those people had tried using it, or 6 percent of all US households, Hearts & Wallets found. The consumer research firm projects that Robinhood retains about two-thirds of the customers who try it. While that rate wouldn’t look good for a well-established financial services firm, it means a lot of business for a newer entrant, Varas noted.

About a quarter of households have put money into a tech-based investing or savings service, she said. That money tends to be going to, and sticking with, firms that have a lot of scale, as consumers are on the whole taking companies’ market presence into account.

“Scale is becoming a really big deal,” Varas said. “There is a realization [among consumers] that … we’re not designing yoga pants – we’re talking about financial assets, people’s futures – really serious things.”

Although traditional financial services firms have less reach than recent fintech entrants, data show that companies like Vanguard, Wells Fargo and J.P. Morgan have been marketing their newer products successfully to existing customers. For example, 39 percent of Vanguard customers said they were aware of its Personal Advisor Select service, according to Hearts & Wallets. At Wells Fargo, 29 percent said they knew about the company’s Intuitive Investor option. And a third of J.P. Morgan clients were aware of its Wealth Plan option.

Many of those that firms are doing a good job of reaching are young. Eighty-two percent of people under 35 said they were aware of fintechs and newer services from traditional firms, according to the report. Of the people who try their services, two-thirds are under 45.

“People should be targeting these things to young investors,” Varas said.