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Digm Piece (Op-Ed)

Fintech and Traditional Banks: An Unlikely Marriage?

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Fintech and traditional banks have a strange relationship. On one hand, fintech is the future with the ability to innovate at lightning speed, providing financial solutions and convenience at a low-cost to its customers. On the other hand, fintech is the new kid on the block so the track record of success has not yet been solidified. Then, you have traditional banks that have been around for many years and have a well-documented road to success. But with that experience comes the risk of becoming antiquated.

To be totally frank, using branches in the way they have been used in the past is not only outdated but a complete waste of money. In fact, the overhead that comes with maintaining physical branches is why we see many financial institutions still charging exuberant fees for services that technology can make free. Who else is going to pay for those beautiful branches?

And what does the data say? According to bankrate.com, one in five Americans have gone an entire year without visiting a bank branch, 26% have reported going to branches on a regular basis, and out of that 26%, more than half of the people earn $75,000 or more per year, leaving those who really can’t afford to pay fees with the responsibility to do so in order to pay for the branches that they don’t even go into! Yep, makes a lot of sense!

To be fair, exiting the branches is not an easy feat for many banks. Because they take out long-term leases on their physical locations it would cost them too much to just close up shop and go in the direction of the low-cost, mobile-only strategy. Also, because of a banking system that wants to stick to a success strategy that has worked in the past, the speed at which traditional banks can innovate is very slow. It’s this slow speed to innovate that could be the death of traditional banks as we know it.

As it relates to fintech, they aren’t free of obstacles and drawbacks either. First, the cost of customer acquisition for new neobanks can literally put them out of business and most fintech players have not yet found a cost-effective way to acquire customers. Secondly, once they acquire customers and are ready to get into the business of banking, such as lending, they often lack access to capital and more importantly access to the low-cost capital needed to create a profitable business model.

This begs the question: How can traditional banks and fintech succeed? Are they friends or are they foes? The truth of the matter is that when you look at the future of the banking industry there are likely three possible outcomes:

  1. The banking industry will be dominated by fintech companies and banks will slowly become obsolete.
  2. Banks will acquire fintech companies and those that remain without a profitable business model will slowly die off.
  3. Banks and fintech companies will coexist and will engage in partnerships and combine the best of both the traditional banking model and fintech.

I am not a gambler but if I was, my money would be on option 3. Why? Because the negatives of a bank (legacy systems, lack of cutting edge technology/superior user and customer experience/innovative & agile culture etc.) are helped by partnering with a fintech and the negatives of a fintech (costly customer acquisition, liquidity, and low cost funding) are helped by partnering with a bank. Understanding this dynamic is why when we started BankMobile we structured it as a technology company with a bank charter; combining the best of both worlds.

Currently attaining a bank charter is not only costly but difficult to get, so it’s important that both fintechs and traditional banks realize that they need each other in order to survive. Also, if they are truly focused on the customer, then this is not only the best thing to do, but the right thing to do in order to help everyday people save time and money. They will do this by providing them with banking services that will not cost them an arm and a leg, while giving them up to date technology that helps them manage their financial lives better.

So fintechs… traditional banks… I now pronounce you strategic partners! You may now kiss the awkward tension between you goodbye!

Fintech and Traditional Banks: An Unlikely Marriage? was originally posted on HuffingtonPost.com.

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Digm Piece (Op-Ed)

5 Hidden Risks in Retirement That Could Affect Your Financial Security

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Being well-prepared for retirement is wonderful, but there is no fail-safe plan. Things can unravel due to many inherent post-retirement risks. Understanding those risks that lie ahead and how they can harm financial security is key to making critical adjustments in a retirement plan. Sometimes without those changes, the impact of unfavorable and unpredictable events can be far more severe.

“Once you have a retirement plan in place, it’s not set in stone,” says Clayton Alexander (www.retireteton.com), an investment adviser and founder of Teton Wealth Group. “Things change. You may add or lose family members, your retirement goals may change, the economic environment may create new considerations, and financial innovations may present new strategies. Once per year is a minimum in terms of making sure your retirement plans (and beneficiaries) are constantly up-to-date.”

Alexander says retirees and those making retirement plans should be aware of these five risks:  

  • Longevity. Running out of money before they die is one of the primary concerns of most retirees. This worry is heightened by the fact that the average life expectancy has increased. “A pension or an annuity can lessen the risk, but carefully investigate any company where you’d place an annuity and be cautious of fees and interest rates,” Alexander says. “It’s best to tailor your plan to run to life expectancy plus five years.”
  • Loss of income. “Make sure both you and your spouse are protected from the unexpected,” Alexander says. “Consider the financial impact of the loss of one spouse. Remember that your surviving spouse will only get the highest of your two Social Security checks. A spouse’s death can bring additional financial burdens, including lingering medical bills and debts. Life insurance and estate planning are important vehicles to protect survivors.”
  • Health care costs. Longer life expectancy could lead to high costs in a long-term care facility. “It’s estimated that approximately 50% of people over 65 will need long-term care,” Alexander says. “Do not overspend on policies that may be subject to drastic premium increases. And surprising to some, Medicare is not free — your premiums for coverage are usually deducted from your Social Security check. Medicare doesn’t cover dental, hearing or vision, is subject to deductibles, and doesn’t cover long-term care. Long-term care insurance is advisable.”
  • Negative return risk. “A 50% gain does not allow a portfolio to recover from a 50% loss,” Alexander says. “In fact, a 100% gain is required to restore a 50% loss. The ‘buy and hold’ strategy that works when you are young — where you wait for the markets to come back up after a downturn — does not apply in retirement as we saw in 2008, when many people’s retirements were wiped out. Common stocks have substantially out-performed other investments over time and thus are usually recommended for retirees as part of a balanced asset allocation strategy, but the rate of return you earn can be significantly lower than the long-term trends.”
  • Inflation risk. “You should plan on prices for food, goods and services getting higher during retirement, reducing your buying power incrementally as you are living on a fixed income,” Alexander says. “Your retirement plan has to factor that in. Ways retirees can curb the effects of inflation include annuity products with a cost-of-living adjustment feature and investing in equities, a home, and other assets.”

“Understanding what the potential post-retirement risks are and considering them in the retirement planning stage,” Alexander says, “can help to ensure that they are mitigated and properly managed.”  

About Clayton Alexander Clayton Alexander (www.retireteton.com) is an investment adviser and founder of Teton Wealth Group. A graduate of Dixie State University with a B.A. in administration, Alexander also worked at Northwestern Mutual and Goldman Sachs. He is licensed for life and health insurance in the state of Utah and has passed the Series 65 securities exam. Alexander focuses on building holistic retirement plans, and with the launch of Teton Wealth he developed the four-step Ascent Plan – a system to help clients gain clarity and perspective on creating a financial plan for safe, secure and tax-efficient retirement income and estate transition.  

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Digm Piece (Op-Ed)

Are Americans Undervaluing Paid Time off + Quick Trip Tips

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It’s August, which for many Europeans means taking almost the entire month off. So why is it difficult for Americans to take even the little vacation time they receive? A recent piece in The Economist states workers in the U.S. are doing it all wrong by going on short holidays, which can add even more stress or taking none. Instead, it’s essential for employees to recharge their batteries. It’s also beneficial for companies to have a consistent holiday month during which junior employees can head to the beach, and managers can take stock of things, says the report.

While many Americans may not receive paid time off, especially those that only work part-time, even those who receive it generally don’t take all of it. What we don’t realize is that not taking a vacation is like giving money back to your employer, especially with companies that have a use it or lose it policy. Which should encourage employees to use their time but unfortunately it does not. According to recent polls conducted by Bankrate, nearly 2600 US adults say they plan to take a quarter of their vacation days while 4% are not planning to take any vacation time at all.

Time off is a valuable perk, to the tune of millions of dollars! Just to bring the point home in 2017 Americans gave up 212 million days off that amounts to $62.2 billion in lost benefits! So, take your vacations and follow the tips below to not break the bank while taking time off:

  1. Take a Staycation – Stay local and vacation somewhere that is less than a day drive away, this helps save gas, mileage, and spending on lodging. Look for local attractions, vineyards, interesting museums and landmarks or even travel to your closest big city and be a tourist for a day. You would be amazed at how much you can discover and learn by staying local and all on the cheap! It’s a bonus if you have friends in the town your visiting they can serve as a tour guide and let you stay over for free if they have the room.
  2. Book Flights Off-Season – July 4th, Memorial Day and Labor Day seem like a great time to go on vacation; unfortunately, everyone is planning to take time off during those busy weekends, and ticket prices are through the roof because of it. Book flights after major holidays and during the week you will generally find that they are cheaper than weekend flights.
  3. Take a Road Trip – Road trips are fun and cheaper than taking a plane, especially if you must rent a car when you get to your destination anyway. Plan cool stops along the way and finds interesting places to eat that way you can make the journey part of the vacation.
  4. Plan to Eat In – Food adds up on vacation so pack food and making one or two meals in your hotel can keep you under budget.
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Digm Piece (Op-Ed)

Top Ten Freshman Money Myths

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Starting college is one of the most important and exciting times of your life. Now that you’re all “checked-in,” enjoy your college experience without worrying about where your next meal will come from by chasing away these common freshman money myths. (more…)

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