The wealth advisory industry has spent a lot of time fretting about robo advisors coming to eat their lunch.
They ain't seen nothing yet. If the likes of Snapchat and payment app Venmo join the wealth business, as has been rumored, watch out. The competition could go from fierce to vicious.
Broadly speaking, instant messaging services have become the fastest-growing way for people to connect, especially among Millennials. WhatsApp (NASDAQ:FB) claims 1 billion active users, Facebook Messenger 800 million, and the Chinese claim 650 million are on WeChat (OTCPK:TCEHY). They are so huge that news publishers like The Wall Street Journal are engaging directly on these IM platforms and gaining huge followings.
Now close your eyes and imagine these services using artificial intelligence to manage money. It's not a very big leap. WeChat is already a very successful payment platform. Social payments start-up Venmo saw users transfer $1 billion in payments in January alone. Sending money through Twitter (NYSE:TWTR) or Gmail (GOOG, GOOGL) is a no-brainer.
Last month, Reuters reported that Snapchat was developing a robo advisor and would also be offering exchange-traded funds (ETFs) to its 200+ million users. Snapchat users are a very engaged crowd: about half are daily active users, according to Omnicore. Snapchat already has a payment partnership with Square (NYSE:SQ), the company founded by Twitter CEO Jack Dorsey. Quartz adds that Venmo, owned by PayPal (NASDAQ:PYPL), is also taking a look at the robo business.
This could be yet another major headache for financial firms which have been working on co-opting robo advisor clients from the original upstarts Betterment and Wealthfront. Last year, Schwab launched Intelligent Portfolios; Fidelity is testing Fidelity Go, another automated service. Vanguard also offers an algorithmic service to compete with fintech companies like blooom, Personal Capital, and SigFig. Everyone from Goldman Sachs (NYSE:GS) to JPMorgan (NYSE:JPM) is re-casting themselves as high-tech, nimble companies.
Snapchat is a standout in the nexgen category - 71% of its users are under the age of 34, 45% are 18-24 years old, and 70% are female. An incredible 30% of all Millennials in the U.S. are on Snapchat. This is a huge demographic still largely untapped by wealth managers, as Reginald Browne, head of ETF trading at Cantor Fitzgerald, tells Reuters:
"The opportunity to deliver financial services for social media platforms is amazing and potentially disruptive, especially in its ability to engage a millennial consumer set that's still emerging."
The stakes are huge: Deloitte estimates that robo advisors could account for $5-7 trillion of assets under management by 2025. Last year, robos accounted for just $100 billion.
Neither Snapchat nor Venmo have publicly commented on whether they had plans to compete in the wealth industry. It seems inevitable, however, that apps like these are going to test this very lucrative area, if for no other reason than they're where Millennials spend so much time. How much time? According to Michelle Klein, head of marketing for Facebook in North America, Millennials check their phones about every six minutes during the day, on average.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I am the managing editor at NexChange. I wrote this piece originally for NexChange.