The SECURE 2.0 Act could help as many as 19 million new 401(k) plan participants join over 500,000 new plans. Small businesses that have typically not been a viable target audience for 401(k) plans from large financial institutions are going to be shopping around for plans in early 2024. Financial services companies are going to need to create a large number of new products in a very short timeline. However, traditional product development cycles may make this extremely difficult.
The SECURE 2.0 Act provides generous tax incentives for small businesses that have typically not been able to afford to offer 401(k) plans. This represents a tremendous revenue opportunity for financial services companies to cover millions of more plan participants. But the Act stipulates that if the private sector cannot meet the opportunity, the government will offer a Treasury-run and subsidized plan to meet the small business need. This means the financial services industry will be competing with the government and will effectively lose the opportunity to serve the small business market.
With so much opportunity at stake, traditional financial services companies not only have to worry about the government stepping in, but also the risk of venture-backed fintech companies.
The industry is watching how the fintechs leverage modern technology to quickly respond to the market’s needs. Four leading fintechs recently co-presented at the 2023 Broadridge Fi360 Solutions conference. Their products, technology, and messaging are clearly shaking up the industry:
With traditional financial services firms focused on large companies for so many years, can they compete with these agile, nimble start-ups that are building products specifically for the small business market?
They are redefining the retirement market in the same way Uber and Lyft refined the taxi industry. Uber and Lyft focused on how modern technology, like the cell phone, could make what was traditionally the most important thing – the car – secondary.
These start-ups are deliberately attacking the incumbents on technology, customer service, flexibility, and accessibility. And even a few jabs at excessive fees. Their tone is casual and approachable versus formal and traditional. They are laser-focused on the SECURE 2.0 small business opportunity and aren’t afraid to spell out why they are a better fit than a traditional financial services firm.
Traditional financial services firms have to be nimble. They have to recognize that they don’t have time to turn a battleship when they are competing with a jet ski zooming past them.
Can companies with legacy infrastructure compete with companies built on modern technology without a multi-year digital transformation project? They can, but they need innovative new solutions that enable them to sidestep legacy processes. Solutions like Coherent Spark can bypass months, or even years, of programming and product development time by converting complex business into cloud-based code in minutes.
Hundreds of thousands of lines of code can be created without programmers and traditional project management cycles, dramatically accelerating time-to-market.
Competing with the fintechs to win SECURE 2.0 business won’t be easy, but it can be done. If you want to learn more about how to accelerate your product development, contact Coherent today.