You have likely felt the impact of fintech innovation through Venmo or using an app for budgeting purposes; such innovations increase competition, blur industry lines and provide consumers with new pathways towards entrepreneurship and credit.
These innovative services are revolutionizing banking by offering more individualized products. This article will outline some of the leading fintech trends that are disrupting traditional banking.
1. Embedded Finance
Telcos, retailers, tech and software companies, car manufacturers and online marketplaces are increasingly exploring embedding payment solutions, lending and finance into their front-end products to meet Gen Z customer expectations and create embedded finance opportunities.
Customers desire banking-like services that increase customer lifetime value and decrease friction during customer journey. In order to do this, businesses require a full financial stack that includes licenses, payment rails and BaaS offerings from Fintech companies with expertise in embedded finance – like Lyft Direct which offers ridesharing drivers an instantaneous checking account linked to debit cards for instant payment receipt and additional perks.
Fintech refers to any technological development within the financial industry, from payments apps like PayPal (PYPL – Get Report) and Venmo to cryptocurrency and blockchain technology, fintechs can help businesses – often start-ups – disconnect specific products and services from traditional banks.
Fintech startups such as Better Mortgage are helping consumers streamline their home mortgage experience while GreenSky connects homeowners to lenders offering competitive interest rates for home improvement projects. Such services have quickly gained favor among Gen Z and millennial consumers.
Banks can counter this trend by building on their brand reputation and customer trust while improving digital offerings such as intuitive user interfaces, gamification and data analytics that appeal more strongly to prospective customers.
Fintech refers to digital innovations within the financial industry and encompasses everything from robo-advisors, payment apps, peer-to-peer lending platforms and investment/crypto apps – among many others – all the way down to cryptocurrency wallets.
Fintech investments provide new pathways to entrepreneurship and credit, may foster financial inclusion and democratisation, improve stock market efficiency through data analytics and automated trading systems, revolutionise banking backend processes like clearing (NSCC), payment (ACH), messaging systems etc. and further democratisation of banking services.
Large banks stand to lose much from disruptors; however, they can leverage their competitive advantages like brand reputation, customer networks and wealth to work alongside fintechs in collaboration. Accepting digital transformation, prioritising customer-centricity and encouraging innovation are crucially important for traditional banks or they risk falling behind the competition and facing serious repercussions.
Fintech companies are offering consumers and businesses alike a host of financial services. Mobile wallets such as Apple Pay and Google Wallet make managing finances simpler; peer-to-peer payment apps lower cross-border money transfer costs; while financial software streamlines mortgage applications or assesses credit risk swiftly.
Traditional banks must innovate to remain competitive or risk losing market share across various segments and becoming less relevant to tech-savvy customers. Furthermore, traditional banks must stay abreast of regulatory changes to avoid penalties; some fintechs are providing solutions such as compliance technology companies which automate processes and monitor changes; other services may meet specific customer needs such as providing buy-now-pay-later buttons on e-commerce websites.
Fintech startups are disrupting traditional banking, trading, financial advice and products by providing faster service than banks can. Many fintech startups aim to replace or supplement traditional banks by offering more nimble, better solutions.
FinTech companies generally enjoy lower operating costs than traditional banks due to being online-only and using technology processes, and can pass these savings along in terms of lower fees and interest rates for consumers.
As well, financial organizations are using tools like Acorns – which invests spare change from debit and credit card purchases into exchange-traded funds – to gamify their services and products, making everyday tasks such as budgeting more engaging for consumers while strengthening customer relationships and leading to an improved client-centric service that’s revolutionizing how banks treat their customers.