Jeffery Perry shares a post that explores Gen Z and their move towards financial acumen.
Gen Z is no longer just children. The oldest members of Gen Z turn 25 in 2021 and are demonstrating their own attitudes about money and their financial futures. As the first generation to be completely immersed in digital technologies, from the ease of buying almost anything with a touch of a smartphone, endless subscription opportunities, and cashless payment systems, it is easy to assume Gen Z to be perpetual consumers with limited financial discipline. Quite the contrary, studies reveal that Gen Z is emerging with more financial acumen regarding debt, saving, and retirement compared to their Millennial siblings and Gen X parents when they were at similar ages.
Gen Z is generally defined as those born between 1996 and 2016. Why analyze Gen Z’s attitude towards money? It is because Gen Z will be the driving force in the economy very soon. According to Bank of America research, in less than a decade, Gen Z will represent 27% of the world’s income, surpassing that of Millennials.
Gen Z has witnessed two phenomena from earlier generations that inform their approach to money – massive student loan debt and out-of-control credit card debt.
Millennials, often Gen Z’s older siblings, have racked up half a trillion dollars in crippling student loan debt. To make matters worse, according to Pew Research Center, there is an 11% default rate and over 50% of Millennials do not see a path to paying off student loan debt given their current career outcomes and prospects. Gen X, often Gen Z’s parents, has routinely racked up the highest credit card debt of any generation from early adulthood through to today. About 50% of Gen X revolve credit card balances with no end in sight. While this extensive use of plastic has fueled the economy, it has left many Gen X trying to reduce consumer debt as they approach retirement age. According to a Schwab retirement study, 42% of Gen X is more focused on debt repayment over retirement savings.
Key points include:
- Student loan debt
- Credit card debt
Read the full post, Gen Z Shows Early Signs of Financial Acumen, on LeadMandates.com.
Luiz Zorzella shares a summarized evolution story on Open Banking.
If you are thinking your response to what is happening around Open Banking, this will provide you with some valuable historical context on how events evolved to get us where we are today:
It all started with online banking.
Before Open Banking, banks thought it would be a good idea to give their clients access to their accounts using the internet.
So, since clients could access their accounts using online banking – some start-ups realized that if these customers provided them with their bank login information, they could log in on these accounts and manage them on their behalf.
Also, at that time, legislation was evolving.
In most of the World, there is customer data that banks cannot share, even if authorized by the customer. For example, credit data.
However, in recent years, if, on the one hand, you see a tightening in data privacy protection, on the other hand, you also see the relaxation and regulation of financial data sharing.
These two factors – the spreading and deepening of online banking and the regulation of financial data sharing, beget a whole generation of fintechs.
These start-ups had algorithms that logged in your account, copied the information displayed on the screen, interpreted that information and used this data to populate their database to provide you with their services.
Key points include:
- The fallibility of algorithms
- Accessing client data and functionality
- Three types of APIs
Read the full article, Trailing the Peculiar Origin and History of Open Banking, on Amquant.com.
Tobias Baer shares an article that questions the current, popular credit strategy of instant gratification with delayed payments.
Buy-Now-Pay-Later (BNPL) is hot – and that makes it increasingly controversial, as it was made clear by Monday’s article in the Financial Times. Retailers love it as a way to increase sales, FinTechs as a way to build new, appealing lending propositions. But from a consumer’s perspective, is it good or evil?
The question whether BNPL is good or evil obviously would inform the regulatory stance as to what extent it should be regulated and even curtailed. Nevertheless, I believe that it is the wrong question. Very often, not least when it comes to regulating the financial industry, we pretend that the product is the problem. What if the problem is the consumer – or more precisely, the consumer choosing the wrong product? In the following, I will briefly argue the good and bad sides of BNPL before suggesting a better approach for regulating financial products.
Good arguments exist to let BNPL prosper
In the ideal case, BNPL creates a clear and positive effect for consumers. For some, BNPL allows to get the benefits of a certain acquisition earlier (e.g., the earlier you upgrade to a safer motorbike helmet, the lower is the risk of a debilitating injury). There even can be a good business case to use BNPL for certain groceries (e.g., it can enable a cash-strapped family to save money by buying certain items in bulk even though the family needs 100% of its current income to feed itself).
Key points include:
- Regulations curtailing access to BNPL
- Four reasons why some view BNPL critically
- A better approach to regulating consumer finance
Read the full article, Is Buy-Now-Pay-Later Good or Evil?, on LinkedIn.
Luiz Zorzella shares an article on the growth of open banking, the factors that “repress” adoption, and possible solutions.
As you probably know, worldwide, Open Banking is one of the hottest trends in financial services.
Not only is it growing at a breakneck speed, but also its success is inspiring regulators and players in other sectors like finance and insurance who now wonder how to replicate the model.
This article is a high-level review of what is happening in Open Banking today.
As I said, Open Banking is growing. To understand how fast it grows, consider that the UK (the pioneer in adopting it) formally started this journey less than three years ago, followed by Hong Kong, the EU, South Korea and Singapore. In the US, the Consumer Financial Protection Bureau joined the race in 2019. Twenty other countries followed suit, including Canada, Australia, India, Japan, Israel and India.
As a result, high growth rates in each market are being compounded by the entry of new markets.
For example, in Europe, when a market opens, it has explosive growth, which tends to stabilize in the single digits range (per month) once it reaches ~8 API calls per inhabitants per month. But, as the UK “stabilizes”, new entrants like Italy, Germany and France push the averages up.
Key points include:
- Screen scraping solutions by Fintechs
- Emerging intermediaries
Read the full article, Open Banking Market Unleashed, on Amquant.com.
Tommy Kim provides an article that explains the differences between Private Equity (PE) and Venture Capital (VC).
Private Equity (PE) vs. Venture Capital (VC). You suddenly realize that you are being presented with two similar, yet different types of capital sources. PE and VC investment management businesses offer investors different types of return on capital using unique risk profiles in long-term illiquid assets.
Whether you are interested in this side of the business as entrepreneurs and CEOs seeking capital or as investment managers seeking to expand your investment management franchise, they are two different types of businesses. As you are shopping for capital, here are the similarities and differences between PE and VC investment management and how they add value to our private capital market landscape and the global economy.
You had been confused at one point, not realizing that PE is actually different from VC. As you have met with both PE and VC managers, you now see that the difference is becoming more clear. Both VC and PE firms work with private capital investing in companies, add value over time, and exit investments through private sale or IPOs, public offerings. The biggest differences between PE vs. VC is in investment size and level of risk taken on each investment. In addition, PE and VC are fundamentally different in the number of deals they do and the size of capital they commit to each investment. Furthermore, PE firms seek no bad deals, while VC firms expect some or many to fail and hope that few would become a unicorn, deals that would be valued over a $1 billion.
Key areas include:
- Types of private equity funds
- Private equity target and blind funds
- Return multiples sought in PE
- Working in PE or VC
Read the full article, Private Equity vs. Venture Capital: What is a Better Fit For You?, on Linkedin.
As both people and businesses begin to feel the economic impacts of the Coronavirus, Tobias Baer provides clear steps that can help your business deal with delinquent accounts.
Many of my clients so far have experienced less delinquencies on consumer debt than I had feared. Unfortunately I don’t think that I can claim that this is only because I’ve helped them draw up extraordinarily effective credit policies and scoring systems – instead, this time around delinquencies themselves might be delayed, and lower balances today may be the receding water levels we observe before a tsunami. A welcome side-effect of lockdown measures across the world was that many consumers had a lot less opportunity to spend – discretionary spending has nose-dived by 30-60% in many markets and card portfolios. And those who were robbed of their income sources by Covid-19 often had some buffers (cash and credit lines) that they could draw upon.
Advice included in this article:
- How to segment delinquent accounts
- Build an economic model
- Reassign accounts to dedicated team
Read the full article, Three Tools You Need to Stem the coming Tsunami of Bad Debt, on LinkedIn.
Martin Nel shares his synthesis on recent events and data that have informed his outlook on how COVID-19 will affect major players in Canadian Retail Banking.
Covid-19: When will it end? What will be the damage to the economy? What will be the impact on the major players in Canadian Retail Banking?
Looking at the S&P 500 over the last few weeks, it seems that it will all be over soon, with limited economic damage. Let’s call this the mild outcome.
A Reuters poll of 25 economists says the Canadian economy will shrink by 27.5% this quarter. In April the US growth in unemployment equals the total working population of Canada (~20 million people). Per The London Times Britain is on course to suffer its worst recession for 300 years. Economic indicators say this will go on for quite a while and the damage to the economy will be significant. I’ll call this the severe outcome.
Now, the efficient markets hypothesis says that stock prices reflect all available information and is therefore the best possible prediction of the future. There is also a view that stock markets are driven by irrational human psychology, amplified by trading algorithms. Then again, economic data is reported by publications and neutral stories don’t attract eyeballs or win Pulitzer prizes.
Bottom line: We don’t know which scenario will materialize.
So, let’s look at both scenarios and the impact on Canadian Retail Banking.
Included in this article:
- Delinquencies and losses
- Home prices
Read the full article, Covid-19 and Canadian Retail Banking – Things are not looking too bad for the Dinosaurs, on the NelInc.ca website.
David Gross takes a look ahead at the looming concern about pension plans.
Author’s note: This article focuses on defined benefit pension plans in the private sector. To learn more about the pension challenges facing municipalities and states, check out this article by Mary Williams Walsh at The New York Times and the Federal Reserve’s analysis from December 2019.
Stock markets plummet by 20 to 30 percent. Long-term interest rates drop. Future economic growth and asset returns are in doubt. Each of these scenarios can threaten the solvency of defined benefit pension plans and pose challenges for the employers sponsoring and managing these plans. Like the Great Recession of 2007 to 2009, COVID-19 has delivered all three scenarios overnight. For companies that elected not to de-risk their plans over the past decade, or lacked the financial means to do so, the next decade will bring higher contributions and less discretionary cash for reinvestment, mergers and acquisitions, dividends, and buybacks. For some companies, the next decade will also make them less attractive, or unattractive, to potential acquirers or bring a reorganization or liquidation.
Read the full article, The Next Crisis? Pension Plans, on the Strategic Value Partners’ website.
Pieter Lekkerkerk describes current alternative pricing models making inroads in car insurance in the US: pay-per-mile and driving-score based pricing.
In the last few decades car insurance premiums have traditionally been set based on o a risk assessment questionnaire (typically covering the car, its usage, the driver and her/his background among others), enriched with data from e.g., credit bureaus and the Department of Motor Vehicles (on e.g. traffic fines). In the wave that saw the disruption of many business models in the past few years two main alternative pricing models have emerged:
- Pay-per-use: A rate per mile or minute driven, sometimes complemented by a fixed charge (e.g., MetroMile)
- Driving score-based rates: Tariff is based on the risk implicit in the driving behavior of the driver (speeding, sharp braking etc.)
Areas covered in this article include:
- The relevance of these models in the Brazilian market
- The impact of alternative pricing models in the US
- Key differences between the US and Brazil in claim
- Winning models for Brazil
Read the full article, Alternative Pricing Models in Car Insurance, on the Mirow and Co. website.