Fintech is a term that has been increasingly used in mainstream media, particularly in business news articles, when discussing future trends for the financial services industry. Oxford English Dictionary defines fintech as “computer programs and other technology used to support or enable banking and financial services”, however, Wikipedia goes a step further and asserts “Financial technology companies are generally startups founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software.”
Much of this disruption of financial systems and corporations is already taking place. EY, a UK-based global consultancy, released a report on its first Fintech Adoption Index in December 2015, predicting that fintech adoption could double by the end of 2016 among digitally active consumers.
What are the most popular fintech services?
Payments led the way as the most popular fintech service adopted, making up 18 percent of consumers surveyed by EY. Running a close second was savings and investments at 17 percent. Online insurance services and peer-to-peer lending were less popular at 8 and 6 percent respectively.
As demand for cross-border payments continues to grow around the world, it’s realistic to expect that even more people will continue to look to fintech to take the lead and provide innovative and cost-effective solutions.
Who is using fintech the most?
Not surprisingly, younger consumers with higher incomes living in urban areas tend to be the biggest adopters of fintech services. This makes sense given the greater access to digital devices and the broadband Internet connections needed to effectively use them.
Among those surveyed that said they had used at least two fintech products in the past six months, 25 percent were between 25 and 34 years old, 21 percent were between 35 and 44, and 18 percent were between 18 and 24. Major urban centers with the highest levels of fintech adoption include New York (33 percent), Hong Kong (29 percent), and London (25 percent). People earning more than $150,000 annually were found to be the largest group of fintech users at 44 percent.
Why is fintech so popular?
The most popular reason given by consumers for fintech adoption is the ease of opening a new account (43 percent). Other common reasons include lower rates or fees, customized products and service offerings, enhanced user experience, and improved quality of service.
These reasons reflect the frustration that many consumers are experiencing with their existing financial service providers. Fintech provides a faster, more efficient and affordable alternative, and many people have chosen to make the switch as a result.
What are the biggest challenges for fintech?
Although the number of fintech adopters may seem impressive in major cities so far, they still make up only a small portion of the general population. In order for fintech to gain truly widespread acceptance and use, what are the concerns or perceptions that need to be overcome?
By far, the most popular reason given by consumers for not using fintech services or products is that they were not even aware of their existence (53 percent). Others surveyed said that they failed to see a need for fintech, preferred traditional service providers, didn’t understand how it worked or didn’t trust it.
Based on the responses given by those who aren’t using fintech, a common thread in all of the reasons seems to point at a need for greater awareness and education about the advantages of fintech. As fintech startups gain a larger share of the financial services market, they will continue to build a stronger presence in consumers’ minds. By adequately addressing the concerns of consumers, especially surrounding security, fintech companies can further gain their confidence.
Another area for concern is one that affects all financial services businesses, traditional and disruptive. Regulatory compliance cannot be overlooked, especially as financial regulators continue to tighten the rules surrounding anti-money laundering (AML) and know your customer (KYC). RegTech, or regulatory technology, has emerged partly out of the need for financial services companies to find better ways to maintain their compliance as well as keep up with changes in various regulatory regimes.
“Fintech has changed the way that we think about finance,” said Jon Jones, President of Trulioo. “Customer behavior and expectations are changing and as a result, financial services are becoming unbundled. From everyday banking to shopping for loans or insurance, fintech is making financial services more accessible and affordable for everyone.”
Do you use fintech products or services? If so, which ones?
Infographics credit: EY