To coincide with the release of our latest report Banking on the Future: an exploration of FinTech and the consumer interest, Consumers International lists ten things FinTech means for consumers.
1. Finance + Technology + FinTech = a revolution in financial services
The combination of finance and technology is nothing new. Financial institutions have a long history of adopting new technologies - ATMs, credit cards and chip and pin were once the new radicals. However, FinTech is disrupting the shape and delivery of financial services on a much bigger scale. From micro remittances and peer to peer lending to smartphone budget planners and mobile payments, new businesses are bypassing the established financial middle men and institutions. They are delivering products and services directly to consumers.
Given that half of the world says it is using at least one FinTech service, you’re probably using one already. And if you live in India or China it’s even more likely, with 75% of consumers already using FinTech products.
2. You will have more choice of how you manage your money
FinTech firms and established banks are both battling it out to take their share of the financial services market. FinTech firms enjoy lower operating costs, and can more easily react to consumers’ individual needs as they have greater access to a range of information about them. For their part, established banks have networks across scale, an existing, loyal customer base, strong institutional trust and built-in regulatory compliance. This showdown has intensified competition in the financial services market which is likely to mean greater choice for consumers.
3. Remittance transfers could become faster and cheaper
If you regularly send money to family or friends in other countries, you’ll know how expensive fees can be. In response to the estimated $32 billion lost to fees in cross-border remittances, many FinTech services are undercutting established banks with lower fees and speedier delivery.
In the developing world, services like BitPesa, a remittance service operating in Nigeria, Kenya, Uganda, Tanzania, Senegal, Democratic Republic of the Congo are using blockchain infrastructure reduce transaction costs and drive up transparency. Bigger challengers like Transferwise are competing with major banks and remittance providers by offering fees to send money across borders that they claim is eight times cheaper than sending money by conventional means.
4. Your bank might not exist anymore
A third of millennials in the US don’t think they’ll need a bank in 5 years’ time. Instead they are counting on tech start-ups to replace traditional banking functions. FinTech’s appeal lies in its value for money services and wide-range of innovative solutions to everyday consumer needs. This appeal may be tempered however by growing consumer awareness of the risks attached to fledgling FinTech services. In the space of eight years peer to peer lending companies in China became an integral part of the economic fabric. Regulators were forced to step in when many closed in succession in 2015. Collaboration between technologists, policymakers, industry and regulators could help mitigate these risks.
5.The ‘unbanked’ can more quickly become the ‘banked’
Between 2011 and 2014, 700 million people became account holders, but not through a bank. Mobile-led FinTech has benefited significant numbers of consumers in Sub-Saharan Africa, where mobile money accounts drove the growth in the overall number of account holders from 24% in 2011 to 34% in 2014.
Despite these gains more must be done to increase financial inclusion, especially among women. Only 58% of women have an account compared to 65% of men. In addition to the numerous mobile banking products available, factors such as affordability and the quality of internet access are key to improving financial inclusion.
6. Your financial advisor could be in your pocket…
Financial management apps give consumers access to on-demand financial advice. Apps use transactional data or even behavioural information to provide insights, plans and prompts to help consumers manage their money and even ensure bills are paid. If you tend to overspend on takeaways when your account is running low on funds, the app will know and could nag you to rein it in. Others might go further and automatically ‘sweep up’ money left over at the end of the month and put it into a savings account.
However, with such a large volume of personal data needed to make the apps function effectively, concerns are growing not just over data privacy and protection but the ethics of data use, and how this data is used to attract targeted or intrusive advertising. Could we see a situation where banks and insurers move away from credit agencies in favour of mining social media profiles and internet browsing history?
7. It will be harder to lose your wallet …
Whilst cash still accounts for around 85% of consumer transactions, between 2009 and 2014 the total value of cash-free transactions world-wide increased by almost half. Some of tech’s biggest players have already established themselves in this area with Apple Pay holding 57% of market share, followed by Samsung Pay and Android Pay.
Digital payment providers still have work to do though in convincing consumers their payment platform is best. 49% of consumersstated they were happy with their current payment methods.
8. …But easier to lose your privacy
FinTech services mostly rely on collecting in-depth information about consumers and their behaviours. This has lead financial services to become the most intensive user of data. Champions of FinTech argue that consumers stand to benefit from personalised products and cheaper prices made possible by a better understanding of consumer preferences. Critics argue that this not only increases the scope for data breaches but that such practices could actually increase financial exclusion as consumers seen as risky or those lacking a digital footprint could be priced out.
Your credit risk could even increase based on the actions of other consumers with similar shopping habits to you. A credit card company in the US was caught rating its clients as having a greater credit risk because they used their cards to pay for marriage counselling, therapy, or tyre-repair services, based on its experiences with other consumers and their repayment histories.
9. You could be paying for your sandwich with a Bitcoin
Virtual wallets – which allow you to receive, store and send cryptocurrencies to others – could become the equivalent of a bank account and a payment card in one. Cryptocurrencies appeal because they are decentralised, meaning transactions don’t pass through banks or third parties. They allow for greater personal privacy when making transactions and give consumers the chance to buy virtual coins as an investment. Large mainstream retail brands, such as Dell, Expedia and Subway are already accepting payments in Bitcoin.
However, the very qualities that appeal to Bitcoin adopters have also been a cause of concern. A key feature of any decentralised system, is to remove the potential for a central authority to take control. This raises questions over liability and consumer access to redress or rights to challenge decisions. The security of Bitcoin accounts also came under heavy scrutiny following a digital heist that saw hackers steal $460m worth of Bitcoin. Unless security vulnerabilities are satisfactorily addressed the adoption of cryptocurrencies could be limited.
10. A robot could be looking after your savings
A robo-advisor collects information from clients about their financial situation through an online survey, and then uses the data to offer advice and/or automatically invest client assets. The number of consumers using robo-advisers almost doubled between 2016 and 2017. US company Wealthfrontis an example of a robo-adviser service that has attracted more than $3 billion in assets.
But it is not necessarily a human vs robot scenario. Established services such as Vanguard, Fidelity and Schwab are beginning to move into the robo-adviser space and are offering their own robot, or hybrid investment options. Robo-advisors may see their market share decline but what they have achieved is bringing investment management services to the masses. Although whether their advice is any better is yet to be proved.
