Why Fintech Will Drive Business Models of the Future: Once considered to be unfailingly secure because of their size, scope, influence as well as the high barriers to promote entry, banks, insurance providers and investment houses came under assault from the new technological wave that threatens their status quo, otherwise their existence. The technology is moving at this type of rapid pace that, by 2020, just as much as 25% from the financial industry’s revenue is going to be in danger.
Based on a PricewaterhouseCoopers (PwC) report titled “Financial Services Technology 2020 and Beyond,” the convergence of financial services and technology, that has arrived at be referred to as fintech, is becoming this type of disruptive force in this short period of time period that established banking institutions must quickly reconsider their business models or risk obsolescence in significant areas of the financial services value chain.
Technological advancements in other industries have ramped in the expectations of clients, who now demand high quality and much more personalized services, seamless experiences and much more value for his or her cash in all interactions with businesses. Fintech offers to provide the same for consumers within the financial services industry, however, there is a lot more behind the push toward new clients models than customer-friendly solutions.
The Sharing Economy
The recognition of mobile tech-driven companies like Uber Technologies Inc. and Airbnb Inc. is evidence that the sharing economy is rapidly emerging. An escalating portion of individuals are becoming at ease with dealing directly with others.
The idea of peer-to-peer (P2P) engagement takes hold inside a broad swath of industries including financial services. P2P lending, led by companies like Lending Club Corp. (NYSE: LC- LC – LendingClub Corp – 3.95 – 1.28%) and Prosper Inc., is steadily growing its share from the consumer and business lending market. Through crowdfunding sites, smaller investors can put money into the type of opportunities once only accessible to venture capitalists. New payments technology that eliminates the necessity for checks or bank cards has already been disrupting the customer-bank relationship. P2P payment technology is emerging, allowing people to instantly transfer funds to a different individual.
Within the new, shared economy ecosystem, banks may still work as an intermediary in a few of these transactions, or they might become another area of the value chain. However, without having a significant alternation in their business structure, their role in consumer transactions will steadily decrease.
An enormous quantity of fintech investment continues to be concentrated in developing a digital wallet that exists inside a consumer’s smartphone rather than his pocket or purse.
Digital wallets, that provide consumers having a quick, secure and low-cost method to use, store and send money, may have by far the most disruptive impact on the banking industry, which depends on these offerings to attract customers to higher-end services. Although still in the initial phases, the potential for a digital wallet has attracted technology behemoths like Apple Inc.
Large banking institutions have entire (IT) departments committed to improving efficiency and lowering costs in delivering their services. However, they may be encumbered by massive legacy systems that produce an expense floor beneath that they cannot go without subsidizing costs.
The nature of fintech startup companies is the low footprint and capability to sidestep costly networks that is driving down costs while offering a much better customer experience. Consumers have the ability to transfer payments, open money market accounts, borrow money and invest money at a small fraction of the price of traditional banking institutions.
The Increase from the Millennials
PwC expects the millennial generation to become the greatest users of fintech services. The task for traditional banking institutions is definitely the millennials’ heavy reliance upon social networking for information and guidance that has made them more demanding and much less loyal.
Their knowledge about other kinds of e-commerce has shaped their expectations for personalized service delivered at digital speed. Based on PwC’s research, one out of three millennials would consider changing banks within the next 3 months, plus they are more inclined to compare traditional institutions with digital upstarts.
Fintech companies retain the edge over traditional institutions within their use of and usage of data to tell them from the needs and preferences of the customers, letting them mass customize their offerings.
Younger users came to anticipate the type of personalized service and tailored solutions once only accessible to high-net-worth clients that can be delivered through automated processes and artificial intelligence.