By Zina Kumok, Investopedia
For several years, the finance industry has been witnessing a huge shakeup. New, fast-moving financial technology firms—rather than traditional banks and investment managers—are changing how people spend and save money. These upstarts have exposed older companies to revolutionary technology and a consumer-based focus that users are responding to in droves. And they have already changed how big companies manage and introduce products.
Executives surveyed in the 2017 World Fintech Report by technology consulting firm Capgemini said that non-traditional financial services firms provided a better customer service experience, were more convenient to use, and provided a better value for the money. These are just some of the ways that fintech has improved the landscape of finance—and possibly changed it forever.
Less than a decade ago, mobile banking was limited to checking the total balance in one’s account. Nowadays, most major banks have their own mobile apps where customers can deposit checks, transfer funds and send money to friends and family. Chase Quickpay has become popular in the same way that Venmo and Facebook have made paying back friends easier than ever. Fintech has made managing finances simpler and more relatable to everyone. It has made financial freedom something that more people can attain.
For example, 20 years ago, a financial advisor was something only those with large investment portfolios could afford. Meg Bartlet, president of Flow Financial Planning, said this is one of the biggest changes to come about from the rise of fintech companies. “It used to be that financial planning, especially fee-only financial planning, was effectively available only to wealthy people,” Bartlet said. “A lot of costs were involved in providing tailored investment and financial planning services, and so the service was expensive.
The advent of robo-advisors has made it possible for anyone to start their own retirement account with tailor-made suggestions on where to store their money. Plus, robo-advisors typically charge lower fees than most traditional advisors and have smaller minimum requirements. Fintech companies also focus on attracting huge numbers of individual users while traditional companies tend to want larger companies as clients.
Programs such as Acorns have made investing something people can do as easily as swiping right on Tinder. Digit has capitalized on micro-saving and allowed people to save without setting up a savings account at a brick-and-mortar bank.
It’s no wonder that these startups are shaking up the finance world. More than 40% of executives from The Fintech World Report said that their company culture makes it difficult to change or be inventive. Another challenge for traditional firms is finding the money to pay for new ideas. Maybe being more upfront with fees charged to customers could help; CFA and CFP Mark Struthers of Sona Financial said many traditional financial firms make it hard to figure out their pricing structure while fintech companies are more transparent.
“Most fintech goes out of its way to tell you what you are getting, but not traditional financial companies,” Struthers said. “It’s because fintech has nothing to hide; traditional finance does.”
The Bottom Line
Research shows that fintech firms have changed the financial services climate, although some industry folks still claim that fintech firms are a passing fad. While the upstarts’ overall influence remains to be seen, consumers should expect more innovation and, perhaps, fewer traditional companies operating as they have been since their inception. Traditional firms that don’t want to be left behind technology-wise should consider adding more fintech programs to their offerings and increasing budgets for this realm. Executives with startup and tech experience will likely be prioritized over traditional candidates seeking employment at financial services firms—they’ll be seen as more capable of driving older enterprises into the new fintech landscape.