In 2021, the banking industry is being disrupted. Financial technology, generally referred to simply as fintech, is changing the way banks do business. Fintech is providing a level of competition and innovation that the traditional banking industry has not seen in decades and it is forcing the major players to react.
Fintech is bringing more options and more power to the people. It is giving people and businesses a financial solution that is beneficial for them, not just for the financial institution itself. Fintech has been slowly changing the banking industry for several years now but with world events and its previous success, the impact of fintech on banking is now growing faster than ever.
In the coming years, fintech should only continue to grow in prominence and continue to disrupt the banking industry in more and bigger ways. These ways will fundamentally change the world of banking and how people and businesses interact with financial institutions.
According to Liventus, fintech solutions are increasingly important for providing an optimal banking experience. Here are five ways fintech is changing the banking industry.
1. Fintech is providing more options
It is commonplace in the U.S., as well as a few other countriesin the world, for the big fish to swallow up the smaller ones in business until there are only a few giant corporations that control an entire industry. This happened in the banking world over the course of the last few decades. Our banking options at the outset of the 2000s were pretty much either the “big guys” – Bank of America, Citibank, Wells Fargo, etc. – or a small, local savings bank or credit union.
This lack of choice is bad for competition and innovation. Fintech is changing that. A growing number of fintech solutions are giving people more choice about where and how they bank. Digital-only banks are becoming a viable alternative for people’s banking needs. Banks such as Ally, Chime, and Dave have all experienced big growth in the last few years because they offer people a practical alternative to huge companies. According to Forbes, in mid-2020, over 14 million Americans said a digital-only bank is now their primary bank.
2. Fintech means fewer fees
Ask anyone what their biggest problem with banking in the 21st century is and the answer you will likely get more than any other is fees. The convenience and the ubiquity of the big banks mean they can decide almost whatever fees they want for whatever aspect of baking they want to charge. Fees related to transferring money and making payments through a banking institution are one of the major ways these larger banks make so much money. Fintech is helping to change that.
Even the fees fintech solutions that do charge are significantly lower than those charged by large banks. Additionally, some of the most well-known and widely-used fintech solutions take aim directly at these bank payment fees. This is a big part of the reason why fintech solutions such as PayPal and Venmo have become so popular. They charge a smaller fee to businesses and often no fee for personal users. This is a huge win for the consumer and small business. These solutions have become so successful that major banks have created a similar product structure for their business.
3. Fintech is helping small business
Ordinary people are benefitting from fintech solutions in a big way and so are small businesses which are usually started by ordinary people. The appetite for small business loans in the U.S. is enormous. However, the ability to get a small business loan from a big bank can be difficult. With the large demand, banks are able to cherry-pick the small business owners with the best credit and the most successful track records to lend to. That leaves many small businesses unable to procure funds.
Fintech solutions are more willing to take slightly larger risks on small businesses and are becoming successful doing so. Although this hasn’t necessarily inspired big banks to be freer with their small business lending, it is changing how the banking world and small businesses interact. Fintech lenders such as Kabbage, Fundbox, and Lendio are leaders in this space that are helping small business grow.
4. Fintech is making banking faster
One of the most obvious ways fintech is changing banking is by making it faster, easier, and more convenient. They are accomplishing this in ways that are clearly visible to consumers and in other ways that may not be as recognizable. Most people associate with fintech through simple banking and other financial service apps. These apps allow banking from anywhere at any time; a convenience major banks don’t always offer.
Another way banking is becoming faster with fintech is built into the technology used. Fintech solutions are on the pioneering edge of technology or customer service in areas such as artificial intelligence or robot financial advisors. These technologies take away the need to wait for a human to be available thus expediting the whole process.
5. Fintech is opening revolutionary new possibilities
In 2021, it may not just be the world of banking that is changing. The entire worldwide financial system may be upended in the coming years. If it is, fintech will play a major role. Blockchain technology and cryptocurrency have the power to massively shift the entire global financial marketplace in the coming years and decades. If it does, it will owe no small debt to fintech solutions that are currently embracing this new digital currency far more than traditional financial institutions.
For years, the banking industry was relatively static outside of big banks consolidating their power. That has drastically changed in the 21st century with the advent of fintech solutions. These solutions are disrupting the industry and changing it in ways that are good for individuals and smaller companies. As the 2020s continue forward, we may not know all the ways fintech will transform this industry but we can be sure that it will continue to do so.