The True Cost of Lacking Trust in FinTech

By Nest Wealth on 18/02/2018Article 4 Minute Read

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Every year conducts an annual Digital Money Trends survey, where they ask a sample of Canadians about their relationship with money and financial technology (fintech). This year’s report highlighted a worrisome trend.

Canadians lack trust in a number of different fintech organizations. Even more worrisome is that there is a definite generational divide when it comes to emerging technology – baby boomers are significantly less likely to trust financial technology services than millennials.

This lack of trust can come from a variety of reasons. For example, it might be due to the fact that baby boomers have been accustomed to traditional financial institutions and industry professionals throughout their lives. It might also be due to a need for increased efforts in confidence building on the part of fintech companies. Whatever the reason, though, the lack of trust costs Canadians in general, and baby boomers in specific, a substantial amount of money. You can see what this means when you look at two interesting aspects of financial technology – robo-advisors and mortgage rate calculators.

Let’s start by taking a look at robo-advisors. While 44% of millennials and 42% of generation Xers said that they trusted robo-advisors, that number drops to 23% among baby boomers.

What does this lack of trust mean for consumers? Well, one of the prime selling features of robo-advisors is that they offer a low-cost investment alternative that is accessible to the average Canadian. Many Canadians still hold their investments in higher fee mutual funds, and the cost of those fees adds up over the decades as we save for goals such as our retirement. For a 50-year-old with $150,000 invested to start, who saves $10,000 per year, investing in a robo-advisor instead of higher-fee mutual funds can potentially help save over $200,000 more for retirement (or other goals) over a 15-year period. Check out the numbers for yourself!

A similar pattern happens with mortgage rate calculators on rate comparison websites. While 56% of Canadians on average said that they trust rate comparison websites, the numbers differ across generations.  The percentage of baby boomers trusting rate comparison websites is only 49%, while the millennials trust is much higher at 64%. How much can that lack of trust cost you?

For a home valued at $661,919 (national average price for 2018 predicted by Royal LePage) with a 5-year fixed mortgage at 3.49% (a rate offered by several big banks), amortized over 25 years with a 10% down payment, a homeowner’s monthly mortgage payment would be $3,063. If the same homeowner switched to the best available rate on (2.99% as of this article’s publishing) for a 5-year fixed rate, they would instead pay $2,903 per month. That adds up to $160 per month or $1,920 per year in savings. Imagine the impact if you were to add those savings to your Nest Wealth account.

A survey of Canadian retirement intentions indicated that the average Canadian expected 10% of retirement income to come from home equity, and 27% from personal savings. This means that failure to use the new tools of financial technology can significantly impact over a third of your potential retirement income (and perhaps more).

Trusting in new technology can be challenging, and the companies connecting Canadians with innovative financial technology solutions might have more work to do in helping to build that trust among consumers. However, the true cost of lacking trust (at least in the world of finance) is all too frequently paid in excess fees, higher interest charges, and lost investment returns for the average Canadian. Exploring these new options might translate into hundreds of thousands of dollars for you over time, so this is a great time to explore the options that the fintech revolution is offering you.