Key Macro and Fintech Trends
Why you may be spending more than you need to be - and how we can help
Intro
Fintechs continue to change the way financial advisors, banks, etc. provide the core consumer finance functions: invest, borrow, save, and spend. Consumer appetite and preferences consistently change driven by technology and macro trends - as a financial technology company, we wanted to take a step back and look at some of these emerging and forecasted trends.
Forecasted trends
We will avoid a recession: Naturally, an inflation driven recession is top of mind for most. It is clear that inflation has not been transitory, driven by a confluence of factors: pent up demand for goods and services, record low interest rates, labor shortages, and mainly supply constraints (Ukraine, China’s COVID-19 zero policy, ROE focus of companies causing them to hold little inventory with everything moving to “just-in-time”). Sora’s view is that we will come close to a recession as higher rates drive a decline in stock market value (particularly technology - your author holds NetFlix, so knows this too well), higher borrowing costs, and eventually a slowdown in consumer spending and demand as the savings rate comes down to pre-pandemic levels. Sora thinks we will not enter a formal recession, but will come close, due to supply constraints alleviating (mainly as China learns to live with COVID-19), strong wage growth, and the Fed decelerating its rate increases sooner than expected despite its insistence on doing “everything” to tame inflation.
Consumer debt will grow substantially: Consumers will continue to increase their household debt levels to account for wages growing, but not making up for the increase in prices, decline in stock portfolios, and relatively high housing prices due to low inventory. We expect to see house debt surpass $17T by the end of 2022 as we saw total household debt increase by $266B in 2022Q1 to $15.8B. This increase was driven by mortgages, while credit card debt saw its largest quarterly increase in 22 years in Q4 2021. This will cause consumers to look more closely for fintech solutions that help them manage their debt and lower their overall monthly payments.
Distrust for political and financial institutions will increase: Our polarized politics, the Fed missing badly on calling inflation transitory, the high costs of education and healthcare, and the financial reality for millennials in particular will feed increasing distrust for traditional institutions. In fact, those born after 1980 are the most debt burdened in American history and more than 50% of millennials will likely earn less than their parents, making it so “financial security has never been more top of mind.” According to CB Insights, "The 90M millennials are now the largest generational cohort in America. In aggregate, they command $1.4T in annual spending and have a deep antipathy to traditional financial institutions.”
Autonomous finance has more moments in the sun: Consumers, particularly millennials and Gen-Z are increasingly comfortable with robo-advisors (4x more trust than previous generations), often preferring the convenience of applications, and will continue to demand fintechs move from general recommendations to execution on the consumer behalf. Furthermore, Sora sees lenders increasing their use of AI, more data points, and alternative underwriting (e.g., psychometrics).
DeFi will make mortgages more flexible: We believe we are in the 2nd inning of the crypto game as we see more traditional financial institutions figure out ways to get involved. Albeit, the regulatory landscape, environmental impact, and gas fees create uncertainty, Sora believes crypto is here to stay and will hopefully build a secure, more democratized system in the future - to be determined. On the lending front, we see crypto creating significantly more flexibility on loan terms (e.g., length, rates, etc. ).
Downward fee pressure will continue: A secular and continuing trend remains finance becoming more efficient and the “middle-men” making less. Sora views this as overwhelmingly positive for the consumer and continues to applaud efforts that increase transparency and align incentives between the consumer and financial technology companies, advisors, etc.
