By Ida Vallo Morris
Social Media & Content Manager
Just a couple of years ago, the term ‘fintech,' a mash-up of the words financial technology, was reserved strictly for the financial sector—banks and other financial and lending institutions. Today, fintech touches practically everyone’s daily life, from ecommerce and robo-advisors to online lending and mobile wallets.
In fact, the recent global recommendations for social distancing, working from home, and flattening the curve are pushing fintech to a broad audience who might not even be aware they’re using it. Since banks have been doing their part to limit personal interactions (more on that follows), people have been using fintech for everything—from consumers downloading online banking apps to attorneys relying on online security measures to navigate real estate closings.
The coronavirus is being credited with driving a 72% increase in the use of Fintech apps, as increased need for contactless payments—plus fears of a recession—are driving fintech growth. Quarantine has changed nearly every aspect of our lives, including how we manage our finances. And when those much-anticipated stimulus checks come in, Americans want to make sure they receive, spend, and invest that money securely.
The Evolution of Fintech
The fintech industry continues to evolve, and investment is skyrocketing. With almost 80% of financial institutions already locked into fintech partnerships, it’s poised to transform virtually every industry.
5 Fintech Trends for 2020
1. Big Banks Get Creative.
For the past decade or so—thanks to the Great Recession and tighter regulations—big banks have stagnated. But fintech is just the shot in the arm the industry needed to really start to innovate. Bank of America is the world’s largest blockchain patent holder, and JP Morgan is aggressively wooing young software engineers and other technologists. Not to be outdone, smaller regional and local banks are racing to partner with fintech startups.
2. The Next Generation of Consumers.
Fintech’s evolution means it’s got consumer appeal and awareness across generations, not just for Millennials. The fact is, fintech adoption is increasing for Gen Y and Gen Z, which account for almost 46% of the U.S. population. Fintech firms have a unique opportunity to connect with these consumers and build loyalty and long-lasting relationships.
3. Trends in Tech.
Innovations in technology are the hallmark of the fintech industry. Two important trends stand out:
More and more consumers are using mobile wallets and other mobile payment technology. Google, Apple, Alibaba, and more already have their own payment platforms, and their constant competition has led to countless innovations, including biometric access using fingerprint scans and face recognition. The global mobile payment market is expected to grow at a CAGR of close to 36% over the next five years.
5G is set to transform the finance industry. Remote tellers, wearable devices, the IoT, data collection, and more will enable banks and financial companies to offer consumers the innovative mobile services they’ve come to expect. 63% of customers who use a direct bank report being “extremely satisfied.”
4. Investing Apps.
Investing apps allow beginners, as well as more experienced investors, to have control over their finances, with low or no commission fees. Brands like Robinhood make it easy to invest in stocks, bonds, ETFs, crypto-trading, and more. As people become more comfortable with managing their money digitally—often necessitated by social distancing and other health and safety recommendations and requirements—it's an easy evolution to try their hand at online or app investing.
5. Mobile Banking and Payments
Coronavirus has undoubtedly increased people's use of mobile banking and payment apps, including On My Way, Venmo, and CashApp. Not only have banks severely curtailed their hours, restaurants, supermarkets, gas stations, drive-throughs, and more are encouraging consumers to pay with the least amount of contact possible. All of this means people are looking for digital ways to manage their money. Another plus for fintech's future, because once people are used to—and feel secure with—digital banking, a large majority will continue to do so even after quarantine is lifted
Fintech Explosion or Fintech Bubble?
Investment in fintech is steadily increasing. In November of 2019, there were more than 30 fintech companies in the U.S., and those 30 companies had a private market valuation of more than $1B. Consumers are starting to trust fintech companies more, an obviously crucial step before they’re willing to share their sensitive financial information. A 2018 survey showed that 68% of people are comfortable conducting financial transactions through their computer or smartphone, and 48% felt that security over their financial transactions had improved since the year before.
Ironically, due to the 2008 financial crises, continued scandals, and lack of alignment with consumer values, people have lost trust in their old banks. This disenchantment with traditional banks means real opportunity for fintech companies, and accounts for the continued increase in investment.
Here’s where fintech startups can really shine, by focusing on where the big banks are falling short. And that’s exactly where the new kids on the block are succeeding—in big ways, like increased customer service and helping customers pay off student loans and buy houses, but also with niche consumers, like freelancers, the underbanked, Gen Z, and Millennials.
So, is there a fintech bubble? The short answer: probably not. Looking at this chart from the Disruption House, the steep drop-off in the number of fintech startups from 2015 to 2018 is startling. But it’s also misleading.
The chart only reflects the capital market, not retail, so it’s not truly comprehensive of fintech startups as a whole. And since TDH’s chart includes only companies that it describes as “offering financial technology,” the door is wide open for interpretation. ‘Experts’ can barely agree on what constitutes a bubble anyway, so keep in mind that there’s lots of positive buzz around the future of fintech, like here, here, and here.
Plus, since the start of the coronavirus and quarantine, digital technologies are booming—people are settling in to working, staying connected, and entertaining themselves digitally. Of course, Neflix and Zoom have seen big increases, but, as mentioned previously, so has fintech, especially banking and finance apps. It will be interesting to see how these new habits change when quarantine is over. Chances are that peoples' new banking and finance apps will continue to see lots of use, while their streaming-TV services and video calling use will fall.
How Your Brand Can Stand Out: 3 Trends that Fintech Marketers Should Watch
Consumers expect an Amazon-like personalization experience wherever they go online, and banks are no exception. They want to feel like their financial institution, big or small, knows them, and they want to receive communication and offers that are customized to them. Financial firms are seeing how a personalization strategy that delivers customized financial solutions can help them connect with consumers.
Fear of a Recession
As the coronavirus (COVID-19) spreads across the country, causing the stock market to plummet, businesses are reacting. That includes banks, which are dealing with social distancing by requiring customers to make appointments before they come into a branch, providing only drive-through access, or even closing their branches. Most major banks have their own coronavirus webpages to help customers navigate the uncertain financial environment. What that means is banks are really starting to highlight their online services. They’re touting their remote banking services, encouraging customers to deposit checks, withdraw money, and even access loan information and services without having to step foot in a branch.
Many fintech startups have already embraced the idea of Bitcoin and some have even built their businesses around it. Cryptocurrencies occupy most of the fintech market. Since modern consumers want to control as much of their finances as they can, they demand transparent financial services that are as close to real time as they can be. And because competition is fierce, fintech companies are keen to meet this goal, which is possible thanks to blockchain’s ability to deliver a wide range of seamless banking and financial services to their customers.
The Fintech Forecast
As technology adoption increases, fintech is predicted to revolutionize across industries. Increased investment, comprehensive worldwide regulations, and technology innovations combine to spur significant progress in the very near future. With fintech playing a big role in many of the newest tech developments that most people use every day, from PayPal and chatbots to Venmo and online trading—the evolution is already happening.
For a deeper dive into FinTech trends for 2020, download our whitepaper.