ISSUE BRIEF: FinTech and Older Adults

Introduction

Fintech, or “financial technology,” is an industry on the rise to assist in personal financial management and documentation in order to increase monetary security and reduce fraud and exploitation. The fintech industry utilizes specialized software and algorithms on electronic devices, such as computers and mobile phones, to detect unusual spending activity. This fairly new field has become a third party watchdog for consumer finances.

Background

The very early beginnings of fintech occurred in the late 1880s as financial globalization began to take place and money could be wired across great spans of land. Between the 1960s-2006, fintech took form as a background computer resource used in banks and trading firms, while online banking was becoming an international norm.^[1] Since 2008, fintech has transformed in the technological landscape to become more consumer-friendly. Fintech is used for various purposes, such as electronic apps to transfer money, submit mobile deposits, fundraise and assist with investment management.^[2] While fintech is on the rise, the industry is faced with an uphill battle to create a trustworthy foundation for users because this resource within modern technology is relatively new. Nonetheless, fintech apps have many different uses. They use artificial intelligence (AI) in order to learn the users’ habits to track or flag any suspicious spending behavior. The industry also utilizes AI to answer simple questions users may have about their account(s). The ultimate goal of this emerging service is meant to offer direct, faster banking services and act as an alternative to traditional financial assistance offered by banking institutions.

Use of Fintech for Seniors 

Fintech can allow older adults to both manage their finances and provide protection from outside fraudulent behavior. Seniors are the highest targeted age group for fraud and exploitation and would benefit from notifications, alerts and assistance in scam prevention. In 2017, the Consumer Financial Protection Bureau (CFPB) reported 3.5 million recorded cases of fraud or exploitation directed at seniors, specifically between 70-79 years old, with an average loss of $43,000 per case.^[3] Seniors are highly vulnerable to financial abuse and exploitation. Fintech apps, such as EverSafe, are designed to help keep track of accounts, minimize the possibility of scams and monitor the older adult’s spending activity.

Fintech and Low- to Moderate-Income Seniors

Low- and moderate-income (LMI) seniors comprise a demographic which fintech may reach and impact because, due to employment and income fluctuation, fintech would allow individuals the chance to plan ahead and become financially literate. If a household income is between 50%-80% of U.S. Department of Housing and Urban Development’s (HUD) national income, then the family or individual is considered moderate-income. If a household’s income is 50% or below HUD’s national income level, the family or individual is considered low-income.^[4] Fintech offers an alternative to the current short-term, small-dollar credit (STSDC) system, also known as payday loans that many LMI seniors use. This system is meant to bridge the gap when seniors are experiencing a cash-flow shortage between their pay or benefits check.^[5] In addition, fintech enables LMI seniors to be more hands-on with their finances because it allows for the seniors, their families or caregivers to plan ahead. Furthermore, variation in income and expenses can present challenges for housing, employment and finances. Fintech would assist LMI seniors with planning and managing finances when they experience an ebb and flow in income.

Fintech Impacts on Older Adults and Socio-Economic Factors 

The development of fintech can also help seniors or their caregivers manage finances. Fintech may improve caregivers’ ability to supervise older adult finances from a distance, such as if the family member lived in another state. Fintech’s use of AI can monitor the user’s activity and spending behaviors and can catch suspicious warning signs.^[6] Not only can fintech keep track of finances, but it can also be designed to minimize seniors’ susceptibility to fraud and abuse. However, because many older adults do not feel comfortable operating electronic devices, it is difficult to assess whether fintech will be widely used by seniors. Typically, a person’s utilization of electronics is correlated with how confident they feel about using technology. Segments of the older adult population may lack expertise with electronics and technology, which could make fintech challenging. In 2015, a Pew Research survey found roughly one-third of seniors either felt little or no confidence in their ability to use electronics on their own and about 73% of the seniors represented in the research needed some kind of assistance when setting up a device.^[7] It is also less likely for seniors to use technology if they have a disability. About two in every five seniors have a disability.^[8] However, once seniors are online, they are likely to have high engagement with their devices by going on the internet fairly often, along with using social media platforms.

There is a high correlation between smartphone possession and socio-economic status. About 81% of seniors who have a household income of $75,000 or more report having a smartphone. In addition, 65% of older adults who have at least a bachelor’s degree and 45% of those who have at least some college education have a smartphone. In contrast, 27% of seniors who have an income of $30,000 or lower, along with 27% of those who only have a high school diploma or less have smartphones. It may take time for fintech companies and apps to build and maintain a solid foundation of trust and reliance for more older adults to participate. However, about 59% of older adults who range from 65-69 years old are likely to have smartphones, along with approximately 49% of 70-74-year-olds, about 31% 75-79-year-olds and 17% of 80 years old and older.^[9] As more people age into older adulthood, the number of seniors who have experience with technology is expected to rise.

The Controversy of Fintech

While fintech provides many positive aspects for consumers, it also poses potential downfalls.  Fintech is meant to serve as a third-party watchdog between the person and their bank. Yet, company suppliers could potentially use consumer information for illegal practices, such as money laundering, tax evasion or contraband transactions.^[10] Fintech can provide supervision for personal financial safeguarding and prevent manipulation from banking institutions, however, industry and app providers are ultimately decentralized and pull into question cybersecurity and data privacy infringement. The United States has not established any federal regulations corresponding to fintech and only a handful of lenders and providers are subjected to consumer protection regulations.⁹ This is a significant detriment to fintech because, without federal standards, fintech companies can have various types of leeway in different states, which makes seniors more or less protected from consumer exploitation, depending on where they live. Federal standards provide a type of consistency with guidelines and clarity for all financial institutions and fintech companies to follow while decreasing company loopholes.

Another obstacle fintech companies face is new technologies and platforms that may impersonate fintech companies. These apps may be targeted at seniors for exploitation purposes, and withdraw validity from legitimate companies. Two of the leading scams listed by the National Council on Aging are health care fraud and counterfeit prescription drug sales.^[11] Other scams include prepaid credit cards, false Social Security benefits, fake lotteries and sweepstakes scams. With a vast range of fraudulent schemes, seniors may be hesitant about electronic devices and resources. Due to the vast amount of financial components of a consumer’s monetary well-being, older adults and their financial caregivers must be cognizant of banking options and savings tactics to ensure they have stable credit and retirement savings. In addition to financial education, older adults should be provided with technological training to maximize their accounts and services. Older adults should learn the signs of fraudulent activity regarding their accounts and understand the prevalent scams.

Fintech Companies for Older Adults

• Tracks user transactions with an emphasis on senior care.
• Utilizes an alert notification system to notify user if there is any suspicious financial activity.
• Keeps loved ones in the loop with their older adult’s finances.
• Provides a recovery plan if a user experiences fraud or comprised identity.
• Supports power of attorneys, guardians, conservators and trusts.^[12]

True Link Financial

• Specifically geared toward seniors, people with special needs and those recovering from addiction.
• Allows user to customize where the card can work, manages cash withdrawals and can prevent transactions with online servers, scam charities, international charges and wire transfers.^[13]

Silver Bills

• Ensures bills are paid correctly and on time.
• Delivers monthly statements confirming bill payment.^[14]

Mint

• Showcases all financial information to the user.
• Gives updates on finances, including accounts and credit cards.
• Provides tips and recommendations to help with management and savings.
• Outlines options for credit cards, loans, investments and insurance.^[15]

Revolt

• Allows for currency exchange, delivers free debit cards and money transfers without charge.
• Includes recurring payment plans to stay on top of finances.^[16]

United Income

• Provides holistic wealth management spanning from essential expenses, university payments and retirement funds.
• Membership includes advice on a range of items, such a Social Security and Medicare.^[17]

The fintech industry addresses financial literacy concerns within the older adult community, but does not solve many of the other issues older adults face. One of the biggest obstacles older adults grapple with is social isolation, which is also one of the propelling factors of senior financial fraud. Seniors should have a trusted contact person to discuss financial decisions and receive guidance to navigate the complex banking world. In addition, if the senior is an immigrant, the person may be frightened that their immigration status will be revealed if they use a bank for their finances. Moreover, a growing number of seniors are also using payday loans to keep up with their monthly expenses.²⁰ Currently, about 19% of seniors use payday loans.^[18] Due to these issues, there has been a gradual transition and increase of older adults becoming unbanked. Fintech may become an appealing option for seniors because the apps can keep the older adult’s payments up-to-date. However, the option of fintech does have to be carefully considered. Fintech gives caregivers or loved ones the ability to have financial oversight, but the apps may allow for easy access to the older adult’s money. This is not regulated through any kind of governmental or industry standards. While fintech is designed to safeguard senior bank accounts, this does not prevent against exploitation from trusted loved ones or fintech company financial wrongdoing.

Conclusion

Fintech is an expanding field aimed to help people keep track of their finances and stay protected from dangerous financial abuse and exploitation and may cater to the growing older adult population. By the year 2050, about 22% of Americans will be 65 years old or older. Electronic banking is being made possible by an increase of people using technology, but most seniors prefer in-person customer service from brick-and-mortar banks. Many older adults do not consider online banking safe due to a preference for handwritten checks along with unpredicted electronic crashes and freezes.^[19] Overall, about 42% of seniors currently have phones and that percentage will likely increase as the Baby Boomer generation continues to have more experience using technology.^[20] The Silent Generation, born between 1920-1945, are not tech-savvy as they grew up when foundational technologies were being built, such as the radio.  Specifically, there are Age-Friendly Banking apps geared toward helping seniors stay on top of their financial activity and decrease the risk of fraud from occurring. Platforms that allow access to clients and their advisors, family office teams and accountants at a cost-effective and efficient implementation for the banks may be the future of private banking.^[21] However, the question remains as to whether or not users can rely on a banking field that is not properly regulated by the federal government. There are a host of agencies, such as the Commodity Futures Trading Commission, Financial Crimes Enforcement Network and The Office of the Comptroller of the Currency, that have standing provisions to keep fintech companies in check. These agencies and other state regulators require the fintech companies to have a license and registration when the fintech companies deal with consumer lending, money transmissions or deal with virtual currency licenses.^[22] In addition, there is some legal enforcement at the federal level. The CFPB can enforce consumer protection and anti-discrimination laws. While there is some regulation, it may be insufficient for a growing industry. Fintech continues to expand as an industry, especially as tech-savvy generations age and grow into fintech use, but whether or not the industry is accountable and reliable is still to be determined.