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.
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?
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.
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.
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!