Financial middle management: the next major fintech opportunity for financial services innovators?

A significant shift is occurring in the demographic landscape, presenting unique challenges and opening new avenues for innovation, particularly in financial services. This demographic transformation is not just a trend, but a catalyst for rethinking and reshaping financial products and services.

As we have seen with increasing life expectancies and ageing populations, financial regulation and industry solutions have had to adapt to cater to longer lifespans and changing retirement expectations. Innovative financial products have emerged to address this, such as retirement planning tools that incorporate longer life expectancies, and investment strategies tailored for different stages of life.

This shift has also contributed to the growth and emergence of a new phenomenon - middle aged people finding themselves caught between the financial responsibilities of supporting both their ageing parents and their own children. This is often referred to as the “sandwich generation”.

At conservative estimates, this “sandwiching” of responsibility - to their parents and their children - impacts over two million people in the UK today. However, that data only accounts for those with a more formal role as a carer, as opposed to the more informal helping out that goes on continuously for many people in this situation.

Driving this increased dependency are factors like an economic downturn, which can go hand in hand with job losses, reduced income and increased financial insecurity, as well as life expectancy increasing while dementia and Alzheimer’s disease, amongst other conditions continue, to be a focal point. On this horizon, scams are always a present factor and managing the money of others safely and securing can be difficult.

The result of these factors can place a huge financial and emotional burden on families. Alongside difficulties in assisting with the financial affairs of elderly - sometimes not digitally enabled - parents, supporting children, and handling their own personal finances, the impact of digital transactions, subscription-based models, and the invisibility of virtual spending adds another layer of complexity and obscurity. When money is tight, and the pressure is on, understanding and managing money more effectively matters.

Unfortunately, many applications that exist today, despite us living in an Open Banking-powered world, do not easily offer a layer of financial management digitally, even with things like power of attorney.

The current financial services landscape

When it comes to a connected financial ecosystem of products and services that help to improve visibility and streamline the management of multiple financial products, as of now, innovation is lacking.

While there are existing platforms that address individual needs, alongside niche players focusing on specific financial aspects, the potential complexity and messiness of managing diverse financial services without a centralised overview is a concern. Currently, figuring this out is passed onto the end user, left to obscurity or outsourced to expensive financial managers.

Existing services are predominantly individual-focused, with limited consideration for familial relationships. Open Banking, a still underutilised asset, hasn't been harnessed to cater to family dynamics, suggesting a lack of appetite for addressing financial needs within the family unit.

Challenges facing innovation in financial services

Clearly, there’s an opportunity for banks, fintechs or players from other industries to enhance, or create all new, services by exploring the unique dynamics of family-based financial management. However, the challenges of integrating financial services into a holistic, family-focused platform - akin to a super app - may go beyond what traditional financial institutions are equipped to handle. For example:

• Trust: People don’t trust their bank, or, at least, not in a deep and meaningful sense. Therefore, building trust in dealing with the financial well-being of multiple generations is challenging. 
• Technological accessibility: Despite a growing baseline level of digital use, it's a challenge to ensure financial solutions in this space are accessible and user-friendly across different levels of digital interaction.
• Is there demand?: While a solution is clearly needed, is it actually wanted? Take Open Banking, for example. It was intended to foster innovation, but has faced challenges in real implementation, possibly due to the reluctance of both financial institutions and consumers. Due to mental models developed over time, there’s the possibility that people may be averse to managing their finances holistically in one place. The concept of a super app raises questions about how well it aligns with both users' needs and preferences, and how we balance privacy, trust, and user experience.
• Legacy systems and regulation: The challenges faced in adapting to innovation - such as strict regulations and legacy systems - may also impact solutions when it comes to this joined-up way of thinking about money management. However, while stringent regulations could hinder development, on the flip side, regulations like the new Consumer Duty Act could lead to positive changes in how financial products are designed. As well as emphasising consumer understanding and transparency with more unified money management being one potential outcome of this.

Where will solutions come from?

Looking to the future, novel and adaptive solutions to these challenges could come from anywhere, perhaps even from outside banking. Regardless, trust will have to be built carefully, because despite the need, there may be no want for it.

That said, a one-size-fits-all approach is no longer suitable in the rapidly changing financial landscape we’re in right now - financial products need to be adaptable and capable of changing with the evolving needs and circumstances of consumers. The dawn of generative AI and its connection to design could realise this by signalling the democratisation of production, with design focusing on the problems to solve rather than the realisation of it in pixels. Of course, this requires immense discipline to get right, as well as solid data and technology foundations, but enhancing the products of interfaces and the code that supports them could open this opportunity for innovation and a more sprawling, but manageable, way of thinking about products and services at an individual level.

Wherever change originates, it’s clear that those managing both their parents and children's finances are ripe for innovation and commercial exploration, and the concept of collective financial support is well worth exploring if it can help create more wealth and financial capabilities within the family unit.