Fintech companies use technology to make banking easier for the consumer. The customer is at the center of the fintech movement – the companies scrape data from various sources like social media to learn more about their customers, then they look at the banking sector and try to figure out the pain points of customers – weak service, unavailability of a physical branch, hidden charges, delayed response, slow transaction speed – and then they come up with technology-based ways to cure those pain points. That is all there is to financial technology. It is just about putting the customer at the center of the banking system.
This has had a great effect on the banking and traditional financial sector, obviously. The customers are more inclined toward the fintech startups that are promising solutions that cater to the consumer almost at a personal level. Banks have not cared to achieve this kind of personal relationship with the common consumer, and now they risk losing 70% of their market share to fintech.
Driving factors of the fintech sector
Technology is at the heart of the fintech movement and the customer is like a guiding force. The fintech companies are investing a lot of resources in understanding their customers and in the effort to breach into more and more consumer sectors.
Fintech companies are offering easy ways to conduct transactions with businesses. Businesses find it easier to acquire a loan or to accept payments through fintech companies than through traditional banking and financial institutes.
There is more transparency, the consumer has access to more information more readily, and loans are available even for low-income groups.
The peer-to-peer market is what the fintech companies count upon. They provide the infrastructure and the platform where the investors and the borrowers can exchange money securely. While these transactions are capped at a lower range, it makes credit more available for someone trying to start a small business. Fintech encourages entrepreneurship in a way that banks have never found.
Also Read – Fintech vs Financial Services: Who’s Ruling The Market?
How has the banking sector adapted to the situation?
Banks have been forced to cater to the changing expectations of customers. They are actively using Software-as-a-Service platforms and technology developed by fintech companies to offer better services to their customers.
A lot of banks have taken a mobile-first approach so that consumers can avail of banking services without making physical visits to the branches.
Personal finance management is another area that banks are trying to offer through mobile devices. However, they are yet to reach the kind of sophistication that fintech applications bring to the table.
Fintech has democratized credit for the people. Whatever may the risks be, it is true that more people have access to small-scale loans even without a credit score. This consumer-first approach has pulled the fintech industry forward, and banks must adopt a similar philosophy to compete with the fintech companies. Application program interfaces or APIs are playing a huge role right now in terms of helping banks integrate technology into their operations. The legacy institutes and fintech companies can and will co-exist but on the latter’s terms.