Age and Inflation

ICYMI, inflation is on the march. Especially so in the Anglo-sphere as The Economist has helpfully pointed out. The Anglo-sphere is home to many a neo or challenger bank and payment unicorn; with its (generally) tech-friendly regulation and enthusiasm for ecommerce, it’s also a healthy and fertile market for ‘foreign’ providers. How will inflation affect them?

This blog posits that it might bite a bit, especially on payment-focussed FinTechs – and most especially if we take it as given that the rise in inflation will be mirrored by a rise in interest rates.

Why? Firstly, because consumers are (or will be) spending less. Rising energy, fuel and food bills will eat into discretionary spending. As rates (continue to) rise, consumers with loans and mortgages (and the Anglo-sphere loves little more than a bit of borrowing) will pay more to service them. Those seeking loans will find it harder and costlier to secure them. All in all, we can expect payment ticket numbers to fall.

Depending on what they do, payment-focussed FinTechs might be taking per-payment fees or percentage cuts of the total amounts paid – or both. As prices rise, you could argue that the percentage crew will be nicely shielded – but they will be protected only to the extent that consumers keep up their spending habits. Arguably many won’t (be able to). Many consumers will also drop the frequency of their incidental spends, which will hit those per-payment fees (and any FinTechs whose valuations are linked to ticket numbers).

If all these FinTechs were sitting on large deposit bases, they’d of course be rubbing their hands at the spectre of higher rates. Higher rates would allow them to charge more on loans while paying depositors only modestly more. They’d also be able to earn more interest on cash balances.

But FinTechs have been chasing Gen.Z and Millienials like they’ve been going out of fashion and by and large have ignored the earlier cohorts – not so much Generation X (39-54), but definitely the Boomer (55-73) and Silent (74-91) cohorts. In doing this they have been focusing, much as banks have always done, on getting customers young. That strategy is all well and good – it’s always nice to have a customer with a good runway – but while courting youth, banks have always been comfortably cushioned by the coffers of the old. The grandparents’ deposits have furnished the grandkids’ loans and mortgages, so to speak. And the older generations really do have the money. Take the UK for instance where the Office for National Statistics estimates that households in the over 60s bracket have net financial wealth of £116,900; that compares with just £2,600 in the 20-24 age bracket and £3,800 in the 25-29 bracket.

The problem that FinTechs face now is that without the weightier balances of those greying generations to play with, with inflation eating away at interchange revenues, higher rates challenging some BNPL business models, the cost of capital rising and more demanding investors, things could look a bit testy.

The good news for FinTechs in most developed economies is that the older age bracket is not only a wealthy one, but a chunky one. Take the UK again where half the adult population is over 50, a quarter of it over 60. Are they happy with their banks? Probably not. Are they attracted by Fintechs and Neo or Challenger banks? Well again probably not, but there again we’d argue that with a few notable exceptions FinTechs haven’t exactly been trying to appeal to them. Most marketing and branding is directly targeted at youth and delivered through youth-focussed channels. At the risk of stereotyping age, we’d suggest that the hot coral colour of Monzo’s original card wasn’t designed for traditional tastes – any more than Wise’s naked campaign was. And we’d submit that the (ubiquitous) “seamless, speedy payment” sell appeals more to those with small balances than those with big ones.

When Revolut wrote in its blog that “social media should be at the forefront of your overall marketing approach” was it thinking of the retired headteacher on Insta or the silver-haired doctor on TikTok? And when the same blog asked “Which stage of life are your customers in? Should you be targeting Gen. Z or will your business be better off marketing to millennials?”, were they thinking (as it read) that those two were the only generations Revolut and its business customers should be marketing to?

Perhaps it's time for FinTech to grow up (its customer base)?