I spent Christmas with my parents, who are in their mid-70s and have been retired for a decade. They shop online, book holidays online and bank online. They use plenty of mobile apps. So do all their friends.
A 2020 survey by Modulr found that 74% of over 65s in the UK use bank and payment apps, and 65% are open to using new financial services or payment methods. And yet approximately 0% of all fintech companies focus on this demographic.
Baby Boomers (born 1945–1964 and aged 60–80) have significantly more assets per capita and represent more than a third of all wealth held in the UK (note that for simplicity I am focusing this article mostly on the UK system, but similar issues exist across Europe and the US).
Older people are always wealthier on average but it is particularly true for Boomers (I am going to use this term for brevity, not in a pejorative “OK boomer” sense).
They are the last generation to have benefited from generous defined benefit pensions; reached the peak of their working career after decades of strong GDP growth and have benefited the most from rising house prices.
However, we have seen very few fintech businesses going after Boomers. Why?
Firstly, very few fintech founders are in this generation, although this is changing slowly as the median age of founders increases.
Few startup founders are aware of the challenges around pension decumulation. There is also a concern that Boomers are not going to be early adopters of a startup and so are a hard demographic to launch with (the “OK, Boomer” stereotype).
This is an overgeneralisation, which I think no longer applies.
So what are the specific fintech needs of Boomers?
Pension decumulation and annuities
The state pension in the UK is just £200 per week. In the past, most retirees would receive a Defined Benefit (DB) pension, where they were guaranteed an income at a % of their final salary.
Retirees with a Defined Contribution (DC) pension would instead buy an annuity at retirement, which would guarantee them an adequate annual income for the rest of their lives. None of this is true any more. DB pensions are confined to the public sector, and most DC pensions are inadequate for a decent standard of living.
UK citizens can take a 25% lump sum from their pension at retirement, making their remaining pension even more inadequate. With life expectancy above 80 years, buying an annuity aged 66 is rarely the best thing to do to maximise your income in retirement.
In the early years of retirement, holding higher risk/return assets like equities and drawing down from them is often best, but requires financial acumen to ensure it is done well.
Low-interest rates have also made annuity returns unattractive. As a result, less than 10% of retirees in the past four years have bought an annuity. With annuity rates improving with increasing interest rates, perhaps now is the time for innovation on the annuity product? There is certainly a strong need to support retirees on their pension investment and decumulation. The Pensions Dashboard in the UK should help with this when it finally launches (but the deadline is now 2026).
Wealth management
While pensions are going down, people are retiring with more investments, in particular after 25 years of generous ISA allowances. Baby Boomers are the cash cows of platforms like St James Place and Hargreaves Lansdowne, as well as myriad local traditional IFAs, where they pay high fees for mediocre wealth management.
For some Boomers, the big online brokers and robo-advisors (e.g. Nutmeg, Scalable Capital) are fine. However most will want more advice and service, and working out how to build trust is key. Ease of consolidation of existing assets is critical and many retirees will want to keep some of their holdings, requiring the remaining portfolio to be built around these. Overall, there is less risk tolerance and a desire to automatically taper risk over time. Dividends to provide income are valued highly (in the UK in particular).
Mortgages and lending for people who are no longer working
With mortgage terms up to 30 years, and interest-only mortgages, we will see more people retiring with an outstanding mortgage. While options exist for this today, they are limited and expensive. More generally, lending for those aged over 70–75 gets harder, with fewer options. More details here, but credit score tends to decline at this age and unpredictability of income (drawdown pension) can be an issue. Including mortgages, the UK later-life lending market was estimated at £154bn in 2022.
Equity release
An increasing number of retirees will not have enough in their savings and pension to fund their retirement. If they own a home and have paid down their mortgage, then equity release is an attractive option to bridge this gap. There is an existing equity release market in the UK today but it can be expensive and with tough terms, leading to mixed perception. Combined with higher interest rates, this has led to a fall in demand to £2.8bn annualised lending and 30k new customers each year.
Probate, wills and estate planning
At the moment in the UK, this is a mess — it can take the bereaved many months to access their partner’s finances. Setting up a power of attorney is recommended by most advisors but few do it as it is cumbersome to set up. Writing a will is easier but still not done by the majority of people. For the wealthiest, inheritance tax optimisation is of interest but complex and daunting.
For balance, below are some of the areas where I don’t believe that Baby Boomers really need distinct products. For these categories, there are benefits for startups that can scale with younger users and expand to older generations over time. That includes services such as: current accounts, credit cards, savings, foreign exchange and share trading (execution-only).
It also includes financial content and price comparison — the main readers of Martin Lewis and the Money sections of papers are Boomers.
At Balderton, we spend a lot of time in fintech and we have only seen a handful of startups going after Boomers. A few I’ve come across include rest less, a UK community for over-50s with a focus on money issues; Profile Pensions, which has a dedicated pension drawdown offering; Farewill, for wills, probate and funerals, and Selina Finance, which is focused on equity release. It isn’t focused on Boomers but presumably this is a good chunk of its user base.
There are also Just Group and subsidiary Hub Group, which is not a startup and not particularly tech, but a $B company focused on the financial needs of retirees. And Key Group and Age Partnership, again neither are tech startups but focused on financial services for retirees.
I am not aware of any in the EU. There are a few more in the US. A good article on US players (from 2019) from CB Insights here. Charlie, which offers current accounts and savings, recently raised a $16M Series A.
Founders sometimes look at fintech and worry that all the good ideas have been done already. This is emphatically not the case in financial services for Boomers. It is a huge underserved market which has hardly been touched by tech startups. I would love to see more founders going after this opportunity in 2024.
