Fintech has changed the game of consumer finance. The companies behind the new wave of finance tools are growing at an eye-popping 24.8% per year, and there’s no end in sight.
Some traditional financial institutions have run the other way from fintech. But many more of them have decided to join the fintech fray. And in the context of customers expectations, it’s not hard to see why.
When it comes to their finances, consumers expect speed, convenience, transparency, and security. And if they see their bank falling short, there’s an alternative but a few keystrokes away.
New Options for Banking
Hidden and unexpected bank fees aren’t news to consumers; the way fintech has forced banks to reconsider them is. Coupled with interface improvements, it’s no wonder fintech is winning out.
Overdraft fees alone cost people an average of $250 per year, while banks make $34 billion dollars in profits from these fees. Because they don’t have the overhead of brick-and-mortar branches, they’re able to axe many of the fees that consumers hate.
For the same reason, online-only banks and banking apps also tend to focus more of their resources on the customer experience. Their mobile and web apps tend to be sleeker. Some even offer prepaid debit card services or include features that can automate saving by rounding up purchases to the nearest dollar.
People who use alternative banking services do still need to manage their own money. But a lot of fintech companies have rolled out tools for that, too.
Money Management Made Easy
Americans are saving more money, and a broader, better suite of financial tools almost certainly plays a role in that. These applications allow users to set goals for themselves, check their credit scores, monitor their spending habits, and receive warnings when they have exceeded their limits.
The fintech boom has also made investing more accessible to the typical consumer. Not long ago, investing was done almost exclusively by wealthy individuals.
A number of investing apps have made sinking money in the market a matter of a few taps. Although spare-change investing apps aren’t likely to turn anyone into a millionaire, they do serve as good starting points for people who aren’t accustomed to investing.
Blockchain is an immutable and decentralized ledger. Because it is nearly impossible to alter, the technology promotes trust among those who use it.
Blockchain is famous for its use in cryptocurrency, but that may be its least interesting application. Fintech companies are experimenting with it in digital identity management, payment infrastructure, securitization, regulatory compliance and audit, trade finance, and more.
Many of those are not consumer finance applications. But as the technology gains more traction, consumers will see all sorts of downstream effects. Less identity theft, lower fees, and more investment options are likely to follow.
P2P Payment Options
Peer-to-peer payments make it easy for consumers to exchange money from their mobile devices. That might sound like a small thing, but its economic benefits are big.
People who previously felt financially unable to dine out or splurge on a vacation now have an easy way to split the bill. Helping consumers afford luxuries improves the flow of money throughout the economy, especially among the people who are the most guarded in their spending.
Although these apps are particularly popular among young consumers, there’s reason to believe they’re spreading to members of other generations as well. To compete with the likes of Venmo and PayPal, some traditional banks have jumped in with offerings like Zelle.
Fairer, Faster Decisions Via AI
Financial firms have discovered all sorts of ways to use artificial intelligence to boost their efficiency. Many of those applications also lend a hand to consumers.
AI has changed the way banks make credit decisions. Reducing human biases in loan approvals unlocks capital for historically disadvantaged communities. Technology also speeds up the process and offers a more personalized experience for consumers.
Chatbots also run on AI, fielding service requests that customers once had to sit on hold in order to make. The technology has become increasingly sophisticated and conversational, to a degree that most consumers can’t tell the difference between a human and a social media bot.
Technology is the engine that changes industries, and few sectors have seen more of it in recent years than consumer finance. The next few are likely to look even more different from where we are now — and for that, consumers and fintech firms alike should be excited.