FinTech is the latest trending word in the financial industry, but the truth is that FinTechs have been around for a long time. The sudden surge in awareness about FinTechs in the financial industry can be credited to the onset of digital transformation in the industry. Since the global COVID-19 pandemic, the need for digital transformation in the industry has been in overdrive. With this overwhelming need for digital financial services comes a need for technologies that can enhance and optimize the current workflow of the financial industry. The word FinTech itself is a culmination of two words “Financial and Technologies.”
The primary aim of FinTech companies is to keep developing innovative solutions for banks, credit unions, crypto exchanges, lenders, and any other business operating in the financial industry. By embracing FinTechs, financial institutions can streamline the customer onboarding process by using online KYC verification software or reduce the flow of financial fraud (money laundering, account takeover fraud, ID theft), by leveraging online document verification software.
Regardless of the vital role FinTechs play in the current financial landscape and the potential role they will play in the future, there’s not much that consumers know about FinTechs. As the financial institution will keep growing towards full-blown digital services, the need for FinTechs will keep expanding.
Top 10 Things to Know About FinTechs
- FinTechs: A Revolution in the Financial Industry
The culmination of finance and technology isn’t new at all. Financial institutions have had a long history of embracing technologies to improve workflow. In old age, ATMs, credit card chips, and security pins were the pinnacle of technology. FinTech companies have taken this approach to the next level, and are focusing on taking the financial industry to a secure, digital landscape. From micro remittances and peer-to-peer lending to smartphone banking to online bank account verification for fraud prevention. FinTechs are delivering products and services that are consumer-centric.
Half of all mobile banking services are using a service offered by FinTech service, and chances are that you’re using a service too. Consumers living in India and China have more than 75% of consumers that are using FinTech products and services.
- Faster Money Transfers
Sending money internationally isn’t exactly an easy task, it takes too much time and it’s extremely expensive. Over $32 billion were lost to fees in cross-border money transfers in the last couple of years. FinTechs are stepping in to help consumers from all over the world engage in secure, fast, and less expensive international money transfers.
- Better Control Over Money
One of the biggest benefits that FinTechs have to offer is that they provide customers with better control over their money. FinTech firms can also lower their operating costs, and can more easily react to consumers’ needs based on financial data. This also helps in the healthy growth of competition in the financial market which is better for customers as they get better services.
- Banks May Cease to Exist
A third of millennials that are technologically savvy believe that they won’t need banks in the near future. The common belief is that financial startups will replace traditional banking with the use of technologies. The reason why FinTech is becoming a customer favorite is that they provide innovative solutions for their needs.
In the last 8 years, P2P lending companies in China have become an essential part of the economic space. Regulators were forced to meddle in and find a solution when most of the lending companies closed down.
- More Access to Banks
In just a short span of 3 years between 2011 and 2014, over 700 million people became account holders, but not by using a bank. Mobile-based FinTechs saw a significant growth in the number of consumers in Africa when mobile money accounts drove the growth.
Despite this increase in numbers, financial institutions need to do so much more to increase growth. According to reports, only 58% of all women have accounts compared to 65% of men. In addition to numerous mobile banking products available, affordability and access to the internet are other essential factors.
- Take Your Financial Advisors Everywhere
Financial management apps can also be used to provide financial advice to customers. Apps leverage customer data or even behavioral data to offer insights about a customer’s financial history. Some apps may help you understand how to manage funds, and change your transactional habits. Other apps may go further and automatically increase your savings.
However, with such large volumes of personal data needed to make the apps helpful, the customers may be hesitant at first. This is where Open Banking comes in, with open banking APIs, financial institutions can enhance how consumers handle their money.
- Impossible to Lose Your Wallet
As cash accounts for more than 80% of consumer transactions. That situation has been changing recently, and the value for cash-free transactions has increased by almost half. Some of technology’s biggest players are already utilizing digital transactions such as Apple Pay, Samsung Pay, and Android Pay.
Digital payment providers still have to put in too much effort to ensure that more and more customers switch to their platforms instead of relying on cash. 49% of all consumers stated that they aren’t willing to switch their payment methods.
- Losing Your Privacy
Most FinTech companies rely on data collected from consumers and their spending behaviors. This has allowed financial services to use most of the user data. Top FinTech leaders claim that they stand to benefit from personalized products that can be built using customer data. Some industry leaders claim that this doesn’t only increase the scope of data breaches but such practices can also increase financial exclusion.
Customer credit risk could also increase based on the actions of other consumers that have similar habits.
- Different Payment Methods
With the growth of FinTechs, consumers can store, receive and send cryptocurrencies to others. If cryptocurrencies can be regulated and stripped of significant risks, then they can act as a faster and more secure banking platform. Cryptocurrencies appeal to customers because they are decentralized, meaning transactions don’t go through an intermediary.
However, the qualities that appeal to Bitcoin adopters have also been a reason for concern. A major reason for cryptocurrencies becoming famous is because they remove middlemen from the process. The security level offered by Bitcoin is also scrutinized as hackers stole over $460 Million worth of Bitcoin. Unless security issues are met with a strong force, the adoption of cryptocurrency may not become mainstream.
- Your Savings Can Be Handled After Your Savings
A Robo-advisor collects information from clients about their financial situation with an online survey and then utilizes the data to offer advice on how to handle finances. The number of consumers relying on Robo-advisor for financial advice doubled during 2016-17.