Another day, another fintech app, but the big question is,
who’s driving the demand: financial innovators keen on disrupting the system,
or financial savvy consumers who now understand what they want from their
financial services provider?
Well, as always, it’s not always that clear cut.
Let’s wind back to the start of fintech for a minute. Those
creating fintech companies were dubbed disruptors, storming the inner citadel
of the traditional banks and financial institutions, determined to bring down
the system and forge a new era of inclusivity for all.
Yet, irony of ironies, early stage fintechs were far from
the barbarians breaching the ramparts, but well dressed tech types who not only
understood the system, but were quite happy to work with it and almost bring it
down from within, eventually. And until now, it has been a relationship based
on mutual need and benefit.
Genesis
At their genesis, fintechs typically have been providing
their consumers accessibility and control over their financial needs that’s
been superior in quality and cheaper at the same time compared to those
provided by traditional banks. But to achieve that, fintechs have been renting
issuing licenses from the banks and purchasing processing and transaction
services from processors and vendors. Banks in return have been supporting the
fintechs in exchange for revenue associated with broader reach of fintechs.
With more fintechs applying for and receiving issuing
licenses in the past couple years, and at the same time banks investing in their
own Banking-as-a-Service (BaaS) offerings, banks have been transforming from
partners into competitors as they strive for a larger share of the collective
revenue.
In 2021 we’re likely to see the same trend extended from
banks-fintechs to fintechs-processors. More and more fintechs now strive to own
their own ledgers and interact directly with Visa and Mastercard services and
thus removing their dependencies on traditional processors and gateways.
Processors in turn are aggressively investing in making their solutions more
nimble, accessible and scalable and – sometimes via merger and acquisitions –
aim for the same consumer segments seeking fintech solutions.
That is the backdrop to a hugely exciting and dynamic
industry, but, let’s return to the crux of the question, why so many apps and
who’s driving demand?
Stumped
Fintech products are in demand because they make life easier
for the financial consumer. But, ask the person on the street what is a
fintech, or explain what BaaS actually means, and most will be stumped.
However, a fintech is easy to define. Fintech equals
convenience. A traditional bank will supply their service on their terms,
mostly through an antiquated branch system. A fintech will supply their service
on your terms, via a cloud-based app that means you can do your banking
whenever and wherever you want, not at your bank’s convenience.
And the app user cares little for the clever financial
technology on which the platform is based. If it can create different vaults
for their money, allow them to send money overseas in the blink of an eye, or
change their address in seconds, and do so consistently and without crashing,
then who cares if it has some of the best code in the industry? If it works,
great. If it doesn’t, I’ll go elsewhere.
It’s like your car. Most people look at the shape and color,
and worry about what it says about them, rather than worrying about exactly
what the engine and transmission are doing. The same with an app – how it
works, how it looks and what it says about the user are crucial – the coding
behind the platform is of little significance.
Supply side
And people are using financial apps because they are there,
and there in greater numbers. The supply side is running the show at the
moment, creating ever more useful apps which cater for everything from bank
accounts, to savings, portfolio management and life insurance.
We are currently living through a Klondike where app
developers are throwing out huge nuggets of shiny metal, some of which will be
pure gold, others which will be fool’s gold. But, it’s the industry in the
driving seat at the moment, whether that’s the newbie fintechs, or the banks
trying to fight back with propositions of their own. The machine is working
flat out, spewing out freshly minted apps at a high rate.
You could argue that this machine will slow when the market
becomes saturated, ideas become jaded and investors, who are making sizable
funds from their interest in financial technology, begin to see diminished
returns. And that would be correct, but we must consider how competitive the
market will become.
The fintechs and their apps will have to work hard to keep
their user numbers up, offering evermore more shiny baubles in order to
maintain interest and loyalty. And this in turn will drive further innovation
and development which, given their affinity with tech, will mean that the
fintechs will always have their noses way in front of the traditional banks.
Picky
And there will come a time when the consumer, the user of
the shiny apps, will begin to exert their influence. If it’s easy to begin with
a new app, then it’s easier to drop one. Soon the financial services user will
become picky, choosing an app that most correctly matches their unique needs
and reflects their lifestyle. This will be a nuance, not the step change as now
when consumers have to consider switching their everyday financial affairs to
the cloud.
In short, there are so many apps out there because the
traditional banks allowed a vacuum to build up and we all know what nature thinks
of that. In came the fintechs, filling the space, but the financial consumers
are hot on their heels. It is their demands which will eventually take up the
running and demand more and more in this enlightened financial age and keep
everyone on their toes.
A new financial age is upon us – let’s enjoy!
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