Everywhere you look, there are new options for technology-driven banking and financial services. Fintech— financial technology— is the use of technical innovations to deliver services in the financial industry. This development affects everything from daily banking to long-term investing.
In recent years, the surge of Fintech has many people wondering if Fintech will reshape the financial service industry entirely. In simplest terms: absolutely.
Here’s how Fintech is reshaping the financial service industry today and tomorrow.
More Ownership and Empowerment Over Finances
One of the biggest shifts caused by Fintech is the increase in financial literacy and ownership. This paradigm shift in people taking ownership of their finances is a combination of the options made available by Fintech and access to the internet in general.
Money is no longer the taboo subject it once was. Consumers are plugging in terms like “how do credit repair companies work?” and “how do I start saving for retirement?” then using Fintech to take ownership of the solutions they find. This phenomenon is related to accessibility via smartphones; consumers no longer have to head to the bank for an in-depth picture of their finances.
Shift Toward Online-Only Banks
Another considerable disruption caused by Fintech is the rise of online-only banks. Many new banks— like Tangerine— offer their services exclusively online. As such, they’re able to charge lower fees and prioritize customer service. Online-only banks don’t have the same overhead or staffing fees that traditional banks combat.
As millennials and Gen Z take over the market, it’s estimated that this shift toward online-only banking will continue to grow.
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More Money Transfer Options
The development of remote technology allows people to work from anywhere globally and create diverse teams for projects. The popularity of remote work was on the rise before the COVID-19 pandemic and has grown exponentially since.
Only a few years ago, sending money internationally was costly and arduous. Now, it’s achieved with the click of a few buttons from a variety of free apps. Fintech innovations like Paypal and Transferwise let companies pay freelancers and vendors around the world for a nominal fee— with no banks involved.
Money Moving Faster
Moving money internationally also used to be time-consuming, with the process taking days or weeks. The same applied to moving money between bank accounts or paying bills. If you used a credit card in the 1990s, you likely remember the delay from the time you paid for your meal at a restaurant to when the credit hit your account.
eTransfers— whether through a bank or an app like Venmo— takes seconds for the money to move. This development has created ample opportunity for entrepreneurs and small businesses that rely on a steady cash flow to stay ahead.
AI Integrations for Better Support
Another Fintech disruption that’s reshaping the financial service industry is the use of AI integrations. From chatbots to Robo-advisors, AI is changing how people interact with banks.
Chatbots, in particular, are enhancing customer support. Rather than waiting on hold to ask a few questions, chatbots can provide quick, on-the-spot answers and information about your accounts. Robo-advisors use data and automation to enhance your investment experience while requiring lower fees to manage your money.
Those who grew up during the crash of 2008 are often intimidated by leaving their investments in human hands. AI-driven options and automation meet the Millennial population on their level, encouraging more engagement with financial planning and reshaping the industry.
Revisiting the Banking Business Model
While the disruptions listed above are considerations from the consumer side, they culminate in one overarching issue: the forced change of how banks and financial services operate.
Banks and financial service providers have long made their profits by charging higher service rates for accounts and financial management. The introduction of online apps, online banks, and AI-driven financial services has created a new competitive market. Savvy, empowered consumers don’t want to pay to access their money; if a bank’s service fees are too high, they’ll look elsewhere. As a result, traditional banks are having to rethink their business model— all while investing more money in Fintech to keep up.
In summation, Fintech is indeed reshaping the financial service industry. It’s creating opportunity and transparency at a consumer level and challenging service providers to do better.
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