The Next Billion Dollar Financial Platform – Baby Boomers
If you’ve immersed yourself in the world of Silicon Valley and you keep up with current trends, then it comes as no surprise that ageism in the U.S. tech world is an ongoing debate. The job search engine Indeed reports that 43% of workers in the tech industry worry about losing their jobs due to their age. While the general population is aware of the issue, its resolution is slow-moving.
The characteristics of Generation Z – those born after 1996 – are still being discovered. We don’t know enough about them yet to understand what kind of impact they will have. The Millennial Generation and Gen X have arguably been the main sales focus during the rise of Silicon Valley. Millennials in particular have overtaken the market, with 83% of today’s managers belonging to that generation. Finally, we have the Baby Boomers. Whether it’s because Millennials believe that older generations can’t use new tech – or that they inherently cater to people their own age by nature – Boomers are falling by the wayside.
People aged 50+ are the largest demographic in the United States, encompassing one third of the total population at 110 million. This age group is responsible for spending 50% of the total disposable income in the country.
Each generation has a financial focus that defines their niche. We are beginning to see market segmentation in financial platforms that are focusing on a specific generational group. Having said that, platforms have been built to accommodate the financial needs of Millennials and Gen X.
Successful platforms were initially created to solve one problem, and then branched out to other areas later on. The acquisition of a generational consumer group allows a company to then expand into a much larger market. Social Finance, Inc. and Credit Karma each centered on a specific generation’s financial focus before successfully breaking into other financial territories. Here’s why the next fintech breakthrough will target Baby Boomers.
Young Millennials and Student Debt
In 1989, student debt only made up 10% of all debt owed by young adults. In 2016, it rose to 74%. Millennials still understand the importance of a degree, but their ability to afford it has steadily decreased over time.
SoFi built a multi-billion dollar financial services platform with one single demographic in mind: young millennials in their twenties with significant student debt. SoFi sought to provide a helpful and profitable service to this demographic. Their model provided student loan refinancing with low rates and no fee. They managed to reach out to a customer base of some of the most desirable customers in finance – young, well-educated professionals.
It started with one problem: student debt. From that point, SoFi was able to branch out to other financial services including mortgages, personal loans and wealth management. The next step for them is to forecast whether young Millennials provide lifetime customer value, or whether there will be a natural loss of customers as they age. SoFi has a current valuation of approximately $4 billion.
Generation X’s Fixation on Credit History
While the Millennials have student debt to pay off, Generation X remains in a state of fear for their financial future. A study by Allianz Life aimed to gage the confidence of each generation in regards to their ability to manage their funds. Among Baby Boomers, 44% expressed confidence in managing their money. The Millennials also responded positively, with 41% feeling confident. Generation X, however, showed a significantly more negative outlook, with only 34% responding positively.
Generation X shows increased interest in credit scores as they enter the housing market. Credit Karma noticed a massive customer base of people in their thirties and forties who needed to borrow money. Obtaining and maintaining knowledge of credit scores over an extended period of time is essential to their financial confidence.
Having a free service was the hook that allowed Credit Karma to build a giant customer base. Along with the customers came a trove of data about each individual’s loan history and potential re-financing options.They built on their model by proposing alternative or improved loan options, for which they received a sales commission from their financial partners. Furthermore, Credit Karma allows targeting advertising on its website for financial institutions that wish to pay to direct ads to consumers who fit their profile.
The initial problem was that people in their thirties and forties needed detailed information about their credit scores so as to successfully apply for credit. This allowed Credit Karma to promote alternative lending options to their customers, with high confidence that the loan would be approved, having already seen a detailed overview of credit history. As of April 2018, Credit Karma has more than 80 million members and a valuation of $4 billion.
Silicon Valley For Seniors
The Baby Boomer generation has worked hard for their savings. They got through student debt, and credit history is no longer of much importance. Boomers are paying off their mortgages, and they aren’t concerned with saving money any longer. For them, it’s time to spend.
Boomers want to take advantage of their golden years and see the globe. The average senior travels internationally at least once per year. When they make travel plans, the budget is roughly $5000. An extra $300 is spent on travel insurance. Apart from travel, the main financial necessities of Americans in their fifties, sixties and seventies include healthcare and financial security. Where are the platforms that support this hefty portion of the U.S. population?
If we look overseas, SAGA, a U.K.-based travel and insurance company for seniors, understands this market. Using the same focused service as with SoFi and Credit Karma, SAGA has entered their niche through the travel and insurance needs of seniors. Despite providing limited healthcare coverage (healthcare in the U.K. is free), SAGA is a $2.5 billion company.
As profitable as SAGA is, only recently did it begin to build its financial services platform, which has become the fastest-growing and most profitable part of the company. Saga had previously concentrated on building holiday resorts and cruise ships for its older customers. It fell into becoming a financial platform by accident. Yet, if scaled to the size of the U.S. market, a U.S. version of SAGA is a $30 billion company.
In the next decade, Americans aged 50+ will grow by 16 million as they live longer, healthier lives. They will continue to outspend the rest of the U.S. – Boomers are responsible for over 50% of all consumer expenditure. To tap into this market, a U.S.-based financial platform needs to be built that focuses on their needs: travel, financial security, and health. By accessing one of the three, the platform would be able to branch out to the others.
To date, no company has built a financial services platform specifically for the Baby Boomers. Given the size of the demographic, their unique spending patterns, and the wealth they control, it is only a matter of time until such a platform is built. Our children may inherit the earth, but their parents and grandparents are taking vacations and spending their life savings.