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The Pursuit of Becoming 'Top of Wallet'
Where traditional finance often succeeds, and why FinTech broadly has not yet found a winning strategy.
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As a reformed-banker-turned-fintech-dork, I have spent the bulk of my career in traditional finance and within the last 5 years, repented and decided the technology side of finance was far more exciting. In comparing the two, there are some things that I believe FinTech has improved from traditional finance, including bringing forward novel technology layers while forcing institutions to start creating user-friendly apps.
However, I’ve noticed that FinTech tends to skip over leveraging the tools that have brought about success in traditional finance.
When becoming a contributor for Empire Startups, I was eager to write on one of the more exciting topics where I see potential for FinTech to learn from traditional finance: The Pursuit of Becoming ‘Top of Wallet.’
To most FinTech companies, the goal of being the “primary account” whether it be for checking, savings, debit, credit, or investing, is the long-term vision for success. While becoming “top of wallet” is the key aspiration, the vast majority of product teams are still experimenting with the path to achieving that goal (and many if not most are nowhere near the top three choices for their user base.)
This was what drove me to ask the question for this article, “What does the path to ‘top of wallet’ look like?” This is where traditional finance often succeeds, and why in my opinion, FinTech broadly has not yet found a winning strategy.
Though not the key focus of the Fundrise product vision, this idea of how customers think about “top of wallet” is a topic that comes up often in the many rounds of research that we have performed. This includes hundreds of surveys, countless hours of interviews, and data collection from various demographic cross-sections.
And while I cannot disclose publicly the intent behind the research, our methodology is incredibly similar to that of large financial institutions: Meeting with potential and existing customer bases to understand needs and desires, asking probing questions to solve problems, and deriving individualized conclusions that can be rolled up eventually into a greater strategy. It’s something that I personally get excited about because being able to create real solutions for a user base on a more personal level is, imo, one of the biggest holes in the B2C FinTech space.
Through this research, we’ve found that the ability for any product to shift to “top of wallet” depends not only on the customers’ wealth level but also on their financial savviness. This is easiest to explain by first depicting the groups I’d lump Americans into- and no, these aren’t “personas.”
Our research revealed that it’s most effective to categorize individuals based on their use of financial products and then analyze their behavioral patterns as they progress towards retirement. Most individuals in the U.S. do not make significant progress to retirement (for many reasons I’m not going into here). Therefore age, in addition to standardized marketing profiles, often don’t offer the same level of predictability as they do in other industries. In order to examine how I’d break down the journey of FinTech products, I’d look at the user base and compare them against the underlying product suite.
Particularly, I want to define the parameters we uncovered around users, and how we’d frame them for future research.
Here’s a chart to give you an idea of what I’m describing:
Here are the broad categories of the FinTech wallet user bases that we uncovered in our research:
The majority: The vast majority of U.S. individuals who receive their paycheck, and spend it by the time (or just before) the next check arrives. While some portion of these checks may go towards a company-backed retirement account like a 401k, often the individuals' funds deplete before they can maximize any form of retirement contribution. Considering the average 401k for a 30-39 year old is only $37,200, it’s easy to see why this might be where the majority of Americans sit on the curve. Often, this group includes subsections of individuals who love to learn about the U.S. financial system but haven’t quite gotten a handle on every niche.
Wealth Builders: The next (and much smaller) portion of the pyramid of financial product users. Individuals who receive their check and are able to save a small portion and/or invest beyond something their companies may provide for retirement. These individuals typically have a form of savings, and some form of investable accounts. This group of individuals has more knowledge surrounding the financial system and generally tests different methods to figure out which paths will help them build wealth, and which paths do not.
Wealth Preservers: The topmost of financial product users. Individuals who no longer focus on building wealth because it can occur (for the most part) passively, or without much deep work on their part. They are looking to preserve their wealth (and are generally part of the crowd affiliated with “generational wealth,” whereby they’re able to share their wealth with children and other family members.)
To examine the opposing axis, products can be categorized based on their proximity to the source of income, or more colloquially, how close they are to the ‘origination point’ in what I call The Paycheck Waterfall:
Direct Deposits: These are inherently the stickiest, best segment of the paycheck. If you can get one of your financial product users to change where their paycheck is being placed, you are participating in one of the most important (and likely longest-lasting) segments of a financial relationship.
Auto-invest / Auto-transfer: In this segment, a secondary transaction is initiated from a primary account, where a portion of funds is regularly transferred into your product. Considering these funds must first be deposited into an intermediary ledger before they are integrated onto your ledger, this process represents a second-level operation that typically relies on the presence of discretionary income.
Manual Transfers: This is the third order of a paycheck. After an individual has covered necessary payments and bills, and then allocated funds to more perceived primary investments, any remaining disposable income can be manually transferred into separate accounts. The leftovers here can vary significantly, forming a tail, or a very fat tail, depending on the wealth of the individual who has managed to reach this stage of income.
There is also, by the way, a third axis here. The third axis has to do with the ability for an individual to access any one of these given financial products, which plays a much deeper role across the spectrum and can affect the other segments to a significant degree (hence the ‘financial savviness’ aspect).
However, that axis is for a later conversation.
Stay tuned as this will be a mini-series that further breaks down how the wallet movement can occur and how the third axis contributes to movement. I am so excited to continue this conversation in future newsletters for you all.
Thanks for getting this far and don’t forget to @ me with your thoughts!
VP, New Investor Initiatives at Fundrise, Empire Startups Contributor
**The contents of this article wouldn’t be possible without my research partner, Sara Totri, who has helped guide me through the incredibly complex (and wild!) world of user research. Here’s to hoping it’s useful to others as we discuss the FinTech space.**
The Empire Startups Contributor Cohort is a community of experts providing unique perspectives and insights on the latest in FinTech. Our model is is merit-based and does not offer monetary compensation.
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