Millennials are going on the stock market in greater numbers. However, there is still a significant segment of millennials who are afraid or don’t understand investing, which is why they keep their money out of the market. The missed monetary gains of those uninvolved Millennials could be the difference between retiring or not retiring at all. Instead, this fearful segment of the millennials keep their money safe in a checking account. Neel Ganu realized that money deposited in a checking account should be used to earn you money, as a bank’s interest returns are zero compared to stock returns. He and his team created Finch. Finch is a mainstream fintech company that provides financial accounts to invest your checking account balance on your behalf. The startup is located in Cambridge, Massachusetts.
FrÃ©dÃ©ric Daso: What is the genesis of the idea of ââinvesting part of your current balance in the stock market?
Neel Ganu: Typically, people keep money in up to three accounts: a checking account that is easy to use offers instant access but virtually no return, a savings account that offers relatively easy access, but limited access, but that generates minimal returns and an investment account that holds and grows your money, but offers limited access with several restrictions.
These accounts each have rigid and defined roles. This is how people have been handling money for a long time, but it is because it is the only option.
The few people who optimize their finances use a combination of these accounts. Individuals must manage the flow of money between their funds through an ongoing manual process to make their money work. This friction helps explain why 86% of Americans don’t invest outside of their retirement accounts.
Daso: How did you realize that cash deposited in checking accounts was an untapped resource for ordinary Americans?
Ganu: This means that a large part of the population is missing out on the opportunity to create long-term wealth. We know this is not without reason. For the majority, investing is overwhelming and intimidating. Plus, it means their hard-earned money is out of their immediate reach when needed. But by keeping their unused money in a traditional checking account, they could lose up to 50% of their wealth every ten years!
The good news is that the past decade has seen the advent of fintech innovators challenging the status quo. By introducing commission-free trading, split investing, and the removal of minimum accounts, they helped democratize investing. These innovations have made it easier than ever to start investing today. Despite this, an overwhelming number of people remain on the sidelines, signaling that an even simpler solution is needed.
We knew that to help transform the way people manage their money, we needed to create a solution where clients could unlock the benefits of investing without dramatically changing their behavior – the process needed to be as smooth as possible.
Daso: The combination of returns from an investment account and standard bank account liquidity appears to involve a certain level of risk. How did you assess the appetite of the common person to accept this risk and develop a related financial product to meet their needs?
Ganu: Our investment options are carefully selected to reflect the level of risk we consider appropriate for an everyday account. We only offer large, low-cost, diversified exchange-traded funds (ETFs) created by some of the largest asset managers in the market on our platform.
We take the time to better understand people’s risk tolerance and investment experience. Using this approach, we provide personalized investment recommendations to our clients based on their risk profiles and needs.
Finch offers two types of portfolios: Stable and Growth.
The Stable Portfolio consists of cash and a mix of ETFs that invest in short-term government and corporate bonds. The objective of this portfolio is to allow you to start investing while aiming to preserve your capital. This portfolio gives you the opportunity to earn a slightly higher, but comparable return to what you would in a high yield savings account. Over the past ten years, if you had kept your money in Finch’s Stable Wallet, you would have earned 9.0 times more than a check version and 1.8 times more than a high yield savings account. .
The Growth Portfolio consists of cash and a mix of ETFs that invest in large US stocks and bonds. The purpose of this portfolio is to help you reap the benefits of investing and build long-term wealth. Over the past ten years, if you had kept your money in Finch’s Growth Portfolio, you would have increased your wealth by 33%.
As a reflection of our values ââand growing importance to Millennials, we also offer a sustainable version of the two portfolios that invest in companies with a positive environmental impact, are socially responsible and are committed to high standards of governance. . Within these portfolios, we also help you customize the composition of your portfolio based on your unique risk profile.
Daso: Why did you choose your first customer segment as individuals who are not active users, but focused on finances?
Ganu: When I first came up with the idea for Finch, what I knew was that I had a great innovative product and that it was solving a personal problem that many of my peers and I were facing. Our customer research has validated that this problem has resonated throughout my generation.
Our target clients are millennials who know investing is right for them, but there may be a variety of reasons that haven’t taken the first steps to get started. Three in five millennials aren’t investing today, and the top two reasons we hear are that they find the process complex and can’t afford to lock their money away. Finch addresses both of these challenges.
Millennials have often been overlooked when it comes to managing their money. They have less flexibility to save than other generations, with 62% of them living from paycheck to paycheck. Millennials are investing less than before, with almost 20% less investment today compared to 2008. In addition, Millennials need more retirement funds than other generations due to a longer life and reduced social security. The good news is that retirement is still a long way off and they have time to get back on track. We chose this group because we believe they will benefit the most from what we offer at Finch.
Daso: How did you focus on building your team to address each part of Finch’s main business risks?
Ganu: Finch has three important areas where we needed to train the team to prepare for success.
The first was marketing. Being able to articulate our purpose, create a strong narrative and community, identify our target audience and develop a go-to-market strategy for that group was a huge task that our marketing team was tasked with. The hiring of our Chief Marketing Officer and Digital Content Manager helped to implement these key marketing initiatives.
The second was customer service. Being a digital-only account, a superior customer experience and support is a must. The only time we interact with customers in person (by phone / chat) is through our customer service team. We have a strong focus on customer service and in-house experience to ensure our customers get the best service and we can help them with their money as quickly as possible. Hiring our Customer Success Manager to design our support program from the ground floor has met this need, and we will look to grow this team as we expand our customer base.
The third was product and operations. Being able to execute our plan and tightly integrate our product into operations ensures that customers have a seamless experience no matter how they interact with us. Managing this ensures that we are building a product and a platform that our customers love. The hiring of our COO and Product Manager has been instrumental in executing and ensuring that we are aligned with regulatory and compliance requirements.
Our team members help manage key risks and develop growth, service support playbooks for the critical parts of what we build, and have taken our product from zero to one.
Daso: What made you personally to work on this problem?
Ganu: I’ve always been puzzled as to why investing is so difficult.
Although I have spent most of my career leading financial institutions through their investment decisions, when it comes to managing my own money, I have always thought I could do better – but I didn’t. didn’t and ended up keeping my balance in cash.
Having discovered that three in five Millennials don’t invest in the United States at all, I realized that I was not alone in my inertia. Adding to that the growing financial debt of Millennials, with 62% of salary living on payday, opened my eyes to the importance of this problem.
Many people express that investing is too complex, while others feel that they have very little financial flexibility to think about investing and other economic opportunities. But by keeping their unused money in a traditional checking account, they could lose up to 50% of their wealth every ten years.
Determined to empower the younger generations and help close the wealth gap financially, I set out to find a simpler and more effective way to support financial growth while continuing my education at MIT.
What if investing was less intimidating, unlike choosing a wine in a fancy restaurant? What if people could earn ROIs directly on their current balance rather than having to sweep their money all over the place? What if it was possible for people to spend their invested balance whenever they want?
These âwhat ifsâ led to the creation of Finch (formerly Trio), your new, productive, everyday account that integrates the benefits of investing and the flexibility of checking into a seamless all-in-one account.