In this Spotlight feature, we grill Sara Koslinska, CEO of Limitless app on open banking and how it can work for millennials, the effects on this generation of poor financial education and what the financial services industry can do to simplify the industry.
What is the thinking behind Limitless? What inspired you to set it up?
One of the most shocking things my co-founder Ka-ming Lim read in 2015 was that millennials had a negative savings rate. After over 20 years in the investment industry in London, NY and Singapore, he knew that this was precisely the point in their lives that they should be not just saving money but investing for the long-term. This because of how much time they have to ride out volatility and massively compound their gains. The problem was not simply about the availability of investment options, but finding a way of coming up with an effective way of delivering a compelling product with a message that would resonate with that generation. We wanted to reach as many people as possible and do so as a sustainable business.
I’m a millennial myself, and when a mutual friend introduced Lim and myself while I was living in Singapore, we immediately realised we shared a vision of a product helping millennials to build their financial lives.
Can you tell us more about your partnership with Finnish financial services group OP?
We first launched a savings-only version of our app in 2017 in the European Union, but our ultimate goal is to partner with financial institutions so we can reach even more users. We took part in OP Financial Group’s Open Banking challenge in Finland and made it to the final four. We are currently developing the app and adapting it to the Finnish market with OP. Hopefully in the near future, all customers of OP will be able to use the app.
How do you think millennials can benefit from open banking?
Millennials will be able to benefit from a lot more features and tools, independently from their main banking provider. It gives them the chance to really become the owners of their own data and decide how to use it so they can make more educated decisions on their financials.
It will also give financial institutions access to more and this will help them design more customer centric and personalised value propositions. This data can help them with better credit scoring and risk management while they can offer more relevant products for cross-selling.
Do you think millennials approach personal finances differently to other groups? Is the industry doing enough to cater to these differences?
The most obvious differences with other groups would seem to be their preference for digital only, mobile and cashless solutions, and their resulting lack of loyalty to incumbent financial institutions. However, it could be argued that this is a trend that other groups are heading towards anyway, and it’s just that the millennials are leading the early adopters rather than being fundamentally different. For example, there is evidence that for some services, millennials, like their older peers, also want human advice, though they often prefer it in a hybrid model to supplement the digital channel.
We believe that more of the differences in how they behave with regards to personal finance comes from the significantly lower real incomes they are getting relative to past generations – 20-50% lower by some calculations – alongside unattainable property prices, low job security and, in some places, crippling student debt and poor healthcare coverage.
The low level of accumulated savings among millennials as a whole reflects this. However, it’s also interesting to note the relatively solid savings rate among higher income millennials, even relative to supposedly more frugal generations. We firmly believe that the vast majority of the banking industry still thinks millennials as irresponsible and uninterested in saving and investing, and therefore have made little effort to understand and address the underlying causes for their poor savings rate. Neon colours and edgy or cartoonish images are not enough.
To what extent is a lack of financial education affecting millennials?
We see a lack of financial education affecting more than just millennials. The main difference is just that earlier generations had a “get out of jail free” card in entering a much easier job market at a time of low but rising asset prices, notably but not only in real estate. Millennials don’t, in general, have enough income left over after essential and discretionary expenses – which may or may not include avocado toast – to participate meaningfully through investing and compounding. Of course, millennials are very well educated otherwise, and do appear willing to learn if appropriate and appealing channels are available.
That said, the generally poor level of financial education for everyone means that even the simplest concepts such as compounding of interest in both savings and debt, the value of “time in market” and the reality of short term asset price volatility are poorly understood. It’s just that for millennials, the opportunity cost of not acting now is so much more significant given the length of runway they still have ahead of them. The lack of meaningful action from the financial industry is a massive injustice.
How well do you think millennials are coping when it comes to budgeting and personal finance?
Millennials are actually willing to be good savers when they are in a position to do so, but sadly the vast majority are hampered by a structurally unforgiving economic environment. This includes low real incomes, which are 20% lower than boomers at the same age, low job security, high student debt and impossibly high real estate prices.
It may be worse in the US and Europe, but it’s bad everywhere. Millennials end up feeling like they can’t save, and even if they could, that they don’t have the time and knowledge or the lump sum of capital needed to start with. Basically they are, in aggregate, in a lousy financial state.
Fortunately this well-educated demographic is very open to new alternatives. Innovative services like Limitless that are in sync with their lifestyles help to show that it is indeed possible to save and invest.
What do you see as the main issues millennials are facing today? What would you propose as solutions?
The financial services industry was built in an era where products and pricing were opaque, and all the power lay with a regulator approved oligopoly of giant financial institutions. Millennials suffer as much, if not more, than others from legacy fees and uncompetitive pricing. Open minded regulators, technological change and new players are changing the landscape for the better whether incumbents like it or not. The best solution all round would be for incumbent banks to engage with a curated collection of third party solution providers to increase the chances of delivering the best and most appropriate combination of solutions to multiple narrow and wide groups of their customers.
If you could give millennials just one piece of advice about personal finance, what would it be?
Start saving and investing today, even with small amounts – it will snowball eventually. If we had another, it would be to automatically save half of any pay raises you get for the rest of your life.
What could the financial services industry do to make finance simpler?
Focus on adding more features and functions to their mobile banking apps. Young people no longer want to go to the same bank as their parents by default and they will compare their options online, often gravitating towards those banks with a well regarded mobile banking app to help manage their finances on the go.
Embrace the opportunities offered by open banking and offer transparency and ease of use in all products and services. Instead of trying to build everything in house, work with smart and focused third party providers to create or deliver financial products which are specifically targeted at making customers’ lives simpler. The first winners will be the customers, and the second winners will be the banks which are most focused on their customers.