Name: Brainstorm Finance 2019: The Millennial Effect On Traditional Banking
Uploaded: 2019-06-19
Duration: 19 min 57 s
Description: Traditional banks have little hold over younger people who have turned instead to digital-first companies to save, trade, pay and borrow. What is the secret to attracting these customers—and to keeping them?

All right. Thanks for coming, guys. Thanks for having us. So I wanted to start off, Andy, Wealthfront has recently offered a cash savings account, that you now have the highest interest rate on the market. So you've raised it from 2. 24 % to 2. 51 %. So this is 27 basis points, Most of your customers are millennials who I hear I thought didn't save at all. Why would it matter so much to just raise it by so little? Why does that matter? To raise it by so little or? Yeah well 27 basis points. I mean if millennials aren't saving, why does it mattter to have the highest interest? Well I think it's a false narrative. I think millennials. They're not all sitting in their basement smoking weed every day. [ LAUGH ] They're actually in the most productive stage of their lives. You know, millennials, I think are 1980 to 1995. So the oldest ones are almost 40 years old. They're not 22 year olds. So they're in the wealth accumulation phase of their lives and an offering the highest rate makes it a no brainer to engage with wealth front and that's worked out exceptionally well for For us. How well? How's that going so far? Well, well beyond our wildest expectations, our growth rate is up about 6x. And so yeah, it was a big move to raise the rate to the highest in the market, and it appears to have paid off. Yeah, cuz you started as a [ UNKNOWN ] advisor investments, and now this is more of a banking service. Is that indicative of what welfare will be offering in the future, more [ UNKNOWN ]? Yeah, well millenials keep the vast majority of their money in banks. I think that they are a little bit more wary Of financial markets they've grown up in a time of year from the financial crisis to today's uncertainty with Trump. And they tend to be a little bit more conservative. And so in order to serve them with a full suite of financial services we've found that leading with an FDIC insured high yield cash account. Was the best way to engage. And then we have to build features over time in order to make it a no brainer. And so that's where we're going with our self driving money vision. So speaking of what Millennials are doing with their money, venmo now has 40 million users, which I think about half a day, which is equivalent to about half the millennials in the US. And also my dad who recently started two /. [ UNKNOWN ] Weekends ago. But what's been surprising to you in terms of millennial financial behavior, what have you learned so far? Yeah, I think as we look at millennial behavior, the big thing is that they're really interested in splitting payments and doing things that are more experienced based with their friends. So it's less about buying the next pair of jeans. And a lot more about what can we do together with our friends. I think the other thing we see a lot of is that they appreciate the simplicity. That's items like ven mo create for them where it's not awkward to ask for money. And it's created a network effect that we're using to continue to grow the network to get people like your dad involved. And then He sees his network start growing and becoming Venmo and there's more velocity in the transactions as we get more and more people in the Venmo network as a whole. Yeah. We previously had Walt Benger of Schwab here and we were talking a lot about, you know millennials and the price sensitivity and what it means to cut cut fees and which services are free and Venmo is a free service for the most part for millennials and you have also it well front. And for a lot of free financial products, to these customers and, how how do you, you know, how price sensitive is this generation? you know is it just gonna be kind of lost leading to get to gain volume or, you know, was there anything that millennial is will be willing to pay for ?>> I think they're willing to pay for services that you provide that are better than market. Market, right? So we're in a world right now where there's a lot of commoditization out there and a lot of different products are starting to clone one another, so they have more options than have ever been around in history. So when they're choosing between services, it's easy to crowdsource what's cheapest, is this a good product to use or not. That information passes. It's not only your friend group, you can search the Internet. So as you develop product for them, and add value for them, you need to be very specific in what you're trying to drive and differentiate. And in those situations, they're willing to pay. And I think instant transfer was a great example of that for Venmo. We put $ 1 billion on the product only eight months after we launched it. Right and this was really them saying it is valuable for us to have money and then more but at times we need it out and we're willing to pay you 1 % fee to do so. Yeah. And it sounds like they are responding to, higher interest rates. That's the way, they are price. oOr experiences. The millennials do more research than previous generations. They're internet savvy and they read the review. And are we in focus all of our services around three pillars of value that appeal most to them, which are price simplicity and automation? So I think it's the combination of three probably in that order. Yeah. One thing I wanted to ask you this is sort of a conundrum that I'm trying to wrap my head around. In announcing project Libra yesterday, the head of the project at Facebook, David Marcus, wrote on Twitter, we've heard loud and clear that you don't want social and financial data co- mingled. But isn't that exactly what Venmo does? I mean these millenials are sharing their financial lives and all these transactions. So do they want it or not? It's a good question. They wanted to see. I think there are definitely a segment of users that are willing to share what they're doing financially, and with their specific friend group. Not necessarily a social but it's a complicated space and you really have to be very specific on what you're going after the market is why. There's a lot of products and services you can offer and be very deliberate on what the value you're bringing is. We started with a very simple problem which was. it's hard to pay someone back, you need to have cash, you need to have exact change, you can lose it, you can't track it, there's no ledger of how you spent your money at the end of the week, month, year. So, something like Venmo simplified that entire experience for them and then those situations with the close friend group they're willing to share Can you do anything with that data is that data valuable to them. No that is paper. That data is exceptionally valuable to us so we can see how social groups are interacting. We can see how spend is changing over time we can see categories of spend so there's a lot of information we're gathering off of it. I think some that we're figuring out how to make valuable today. But we continue to see that. There will be more value as you build out the social graphs of how people are interacting with each other and the velocity of money that happens within them .>> What does that mean? What could that dictate in the future has in terms of product or the most maximum? Yeah. So I think there's a lot of different ideas we have with it. But for example, if you tried to get into lending And you knew different groups behavior and everyone was going on a trip together, right, or you looked at people's instruments in their wallet, and said hey these people have debit cards but they are ready for credit cards, right, we understand how they are spending money and they've never had an ACH reject or anything like that, that provides a lot of richness for us to go back to the consumer base, And offer them some products and services. And Andy, I know well front, you're using harnessing data in many ways in terms of what you offer, and also potentially potentially collecting more data that maybe I'll use in the future. Can you talk a little bit about that and how you see data ?>> Sure, our average client links about six accounts to wealth front, and that enables us to really understand their financial lives. Is to be able to provide the most appropriate and personalized advise possible even more personalized than an advisor could. And target the products that they most want. So we see how they've behaved and we can deliver them products that have superior price, simplicity and automation. To what's offered today. Does that help them beat the market? You know beating the market is not possible. There is a lot of research that has shown that it is not possible over the long term. So I don't think that's ones goal. I think our chief investment officer, Burt Mckiel who. Founded the concept of an index fund, says you can't beat the market so you shouldn't try, just minimize fees, minimize taxes and diversify. And that's Wilfred's strategy in a nutshell? That's the investment strategy. The investment strategy yeah. I'm going to come to the audience for questions in a moment. So please get them ready, raise your hand, they'll come to you with a paddle and a microphone. There is a lot of new competitors who are now trying to do a little bit of what Welfare is doing, and there are also competitors offering high yield savings account. Not quite as high as you. A lot of Pin Tack companies are just starting to look like banks and offering a similar array of services. I know you've said in the past that your customers pay you not to talk to them. But how do you compete with the legacy of financial institutions, and the new startups who are entering the market? Well for us, they keys are trust, as you've heard before, and the technology that underlies our vision of self- driving money So this idea of a financial supermarket, or financial hub's not new. 40 years ago, Merrill Lynch innovated with something called a cash management account. And that was the first time you could get banking services and investment services from one firm. And that catapulted Merrill Lynch into the lead among financial institutions. And then 20 years later, Schwab introduced banking services. They were the next generation. And now 20 years after that, you see us and a number of other people going after that market. But the most of the people who are trying to build next generation banks are either serving the unbanked or the people who are living paycheck to paycheck. China is a great example. They ´ re doing exceptionally well, and the major value proposition is, we get you your access to your paycheck sooner by not keeping the flow for a couple of day. Well, that ´ s great for someone who lives paycheck to paycheck, but if you ´ re a millennial that saves Then you don't use a debit card. You don't worry about the paycheck to paycheck, you wanna put all your spending on your Sapphire card, and pay a bill at the end of the month. So, we think that, if we can deliver trust and no one keeps as large balances, With their vendors as our clients use our average client keeps over $ 60000 with us. And no one else delegates the management of their finances to their service provider like us. So that's one of the ways that we think we've earned trust. The other thing is that we've focused on automation. And an advice engine that allows us to deliver what we call self driving money. You'll be able to do act deposit your pay check, automatically pay your bills and then route the money to the most appropriate account for your situation and goals by the end of this year. And that is required a three year investment in technology. If on your behalf. Yeah, no. Yeah. And we haven't seen anyone invest in the banking and brokerage automation platform and the advice engine. Yeah. Do we have any questions? Was there one over here? [ BLANK_AUDIO ] Yes, and please tell us who you are. Hi, my name is Gael from Etorro. So the question is for Andy. Andy you started sketching. I'm interested in knowing why. The concept of social investing didn't work out for you and you mean you pivoted away to something turn out to be real success which was a wealth front today. Well, you know I teach for the last 10 years I taught a course at Stanford Graduate School of Business on product market fit. And one of the most important insights about product market fit is almost no one succeeds at their original strategy. Now everyone revises history because consumers want to believe that you always intended to build the product that they did so every great marketer is A revisionist. In our case, we started with an investment business. The mission stayed the same, which was to democratize access to sophisticated financial advice. And the software stayed the same. 90 % of it did at least, but the user interface changed and so we evolved From what we were in coaching to what we've become today and we've evolved even further with the next generation banking focus so we came to realize that the core elements of what we do our automation and the advice engine how can we best put that together to serve the biggest problems Of our clients. And if you are riveted on delighting your client, the message might change over time. But that's not a sign of weakness, that's a sign of strength. Get your questions ready and please raise you hand if you have them, but in the meantime I have a question for you. Because I know we've been talking a lot about Facebook, Project Libra over this past week and this conference, But of the many articles I've read I've seen them describe Venmo as a competitor to Libra as a competitor to Venmo but PayPal then its parent company is also a partner with Libra. What does that mean? I mean are you going to compete or are you partner or what does the future look like there ?. So, I think we are not sure exactly what the future is gonna be, right. I think we're still trying to figure out the charter of Libra. But we're really interested in the blockchain. We're really interested in the technology that when you start aggregating some of the large players in the space, can simplify financial transaction. And paypal wants voice in that and wants to have a part of that, the nice thing about being part of paypal as venmo is that we get to piggy back on anything they do, so I don't think venmo will be driving the strategy there, but I do think we will piggy back on anything we find successful. Do you think venmo could potentially could have it's own block chain one day? I don't foresee that in my vantage point at this point. I've got. Yeah. Do we have a question, somewhere? No questions. Well I have more. Yeah? [ LAUGH ] So I mean Paypal acquired Venmo. There's a lot of players in the FinTech space, in terms of robot advising, in terms of banking like we talked about Do you see your future as an independent company or is this something that Bank of America or another big bank could acquire or even betterment. Your slightly larger competitor. You know companies are only acquired if they want to be in for 25 years I was a venture capitalist I was a co- founder of venture capital. We never wanted back a company that intended to be acquired, because the likelihood that you could get the upside that you wanted was very, very low. So we like backing entrepreneurs who wanted to go for it. And that meant building a large, independent, publicly traded company. Being public is a really, really good thing. And so when I started wealth fund, my goal from the very beginning was to build a large independent public company. In my experience there only two times you consider selling your business. One is if it's not working, you try to sell it before anyone realizes it which is by the way, why most technology acquisitions Fail, it's not a surprise. And the other one is if someone just pays you such an outrageous price, you can't say no. But everything that we do at Wealthfront is focused around the long- term. And this initiative to build a next- generation bank, we think that's something that has legs for a long time. Why would we consider selling? Yeah. I see a question from Adam question ski over here. Thank you, Andy, nice to see you. If you could keep going on venture capital for a moment what Buttons you're the CEO of Schwab made what I thought was a very interesting comment earlier that one shouldn't confuse the success Shouldn't confuse the progress of a company that is spending venture capitalists' money with success. Could you comment on that from your perspective? Sure, I never focus on valuation. I always focus on revenue and profits. I mean the fact that they don't have to make money because they have this source other than cash flow. You mean like Amazon? [ LAUGH ] So I think that's a ridiculous argument. If you're gonna build a great company for the long term, you have to put in place, you have to make the decisions that will lead to the best outcome. One of our four corporate values in endurance. So everyone at Wealthfront knows that if you have a tradeoff between the short term and the long term, you make the decision that's right for the long term. We're fortunate that we have long- term investors, and they're in no rush to see us go public. I'd actually like to go public before they would, because I think that brings a lot of credibility. The idea that we just wanna spend venture capital, that's crazy. We wanna serve our clients and we wanna build critical mass, so that we can pass along more and more the savings. There are so many excesses in the financial industry and we think our mission is to minimize those excesses and put them back in the hands Of the consumers. And great public companies do that, great private companies do that. Before we wrap up I have a quick question for both of you because we just found out a little while ago that the Fed is keeping interest rates steady, potential to lower them in the next few months but maybe not this year. Both of your businesses rely, make money by the interest you collect and so Lower interest rates, or even where they are now, which is relatively low historically, is that bad for your business? For Venmo it's not a major factor in our business one way or the other. I think the health of the US consumer and particularly the millenial's more of our focus. And it's been such a big part of our business watching their spending patterns, watching how they're interacting with each other, understanding the different products and services we can offer them. We've really focused a lot of time building a two sided network where we've got consumers with all the consumers. Now you can go on Uber or go on GrubHub take your ride, get your food, split it immediately to seamless so that's been a big focus of ours. So we are interconnected with commerce in general. We're on two million Pay Pal merchants where you can check out with Venmo. So the health of the US consumer, particularly millennial and mobile is very important to us. Ironically, when interest rates go up, that's good for us. And the reason is that historically when rates went up and down, banks would raise and lower the rates that they would pay to consumers. And then when the financial crisis hit, they no longer had to pay consumers interest on their deposits and they got used to it. So when rates went up they raised the mortgage rates but they didn't raise the rate that they paid at consumers. And that just pisses consumers off So, just being able to deliver the market rate to consumers endears you to them and generates more trust. And that trust leads them to actually buying more financial services from us. Interesting. So ironically, when rates go up, that helps Right, well, that's great news. Thank you so much, we're out of time, Thank you. But great to have both of you. [ APPLAUSE ] Thank you, be good. [ BLANK_AUDIO ]

Brainstorm Finance 2019: The Millennial Effect On Traditional Banking

Finance

Traditional banks have little hold over younger people who have turned instead to digital-first companies to save, trade, pay and borrow. What is the secret to attracting these customers—and to keeping them?