Intrusive upstarts or welcome contributors?
What do these on-line start-ups offer to help you manage your money compared to traditional financial institutions? And can they hold their own against those traditional banking systems? The subject has the press fired up and was the focus of the MoneyConf2016 2016 that recently took place in Madrid.
Spoiler alert: the consensus is that FinTech’s future looks bright.
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True innovation or marketing concept?
Since the internet and mobile internet revolution, financial technology has grown explosively, and FinTech, which originally referred to computer technology applied to the back office of banks, now describes a broad variety of technological interventions into personal and commercial finance that have upended 20th century banking methods.
A FinTech start-up uses new technologies to offer financial services or products to savers, investors and borrowers. They promise better management of your money than traditional actors and, bypassing the intermediaries, they allow customers to invest or borrow at lower cost. FinTech has found itself an interesting niche in the crowdlending or P2P sector. Peer-to-peer lending sites, like Comparelend’s partners, propose investments in start-ups and various types of loans at reduced rates by opening up broad market forces.
Their role is to make finances simple and accessible to all
These FinTech companies have become a genuine alternative for the general public to the traditional and established banking system. As MoneyConf2016 concluded, the value proposition from these new entrants into the savings and loans market is focussed on the person, on the customers’ real needs; investment offers are adapted to the profile of each investor and borrower as well as to the market.
Main advantages cited: rapidity, ease of use and the quality of the service!
FinTech P2P lending platforms offer transparency through uniform and clearly disclosed loan terms and, through the use of technology, efficient decision-making to quickly assess and assign risk grades and interest rates to loan applicants.
A lot of FinTech innovation focuses on underserved markets where individuals and businesses have little to no access to formal financial services. P2P lending platforms have expanded their product offerings and moved into new sectors of consumer lending in order to capture greater market share. But as P2P lending still represents just a fraction of the outstanding balance of consumer credit in the United States, the growth opportunities are significant. MoneyConf2016 also showed that 61% of financial companies believe that in the next five years more than 60% of their customers will use mobile devices to access financial services.
MoneyConf2016 did concede that traditional institutions have certain advantages over FinTech companies: user confidence and brand image. But that too should change. In the not so olden days, banks used the invisible hand of the market, the price mechanism, to make financial decisions. MoneyConf2016 concluded that in this sense, FinTech companies have a clear advantage over traditional business models, as they were created with an approach more closely related to marketing than to finance, and their services and solutions are completely centered on the user. New technologies, like machine learning, predictive behavioral analytics and data-driven marketing, will take the guess work out of financial decisions.
At MoneyConf2016 it was agreed that the decisive factor for being competitive is not technology itself, but rather knowledge of new consumer habits and behavior, as well as the ability to utilize technology to leverage this knowledge as much as possible.
There’s a catch
The FinTech companies rely on on-line data collecting. Unfortunately, research shows that nearly two thirds (65%) of consumers worry about the data security practices of companies they give their personal and financial information to, a rise of 9% over last year. 59% of consumers admitted that they would select a financial services provider solely on the basis of the additional security measures it offered. Fortunately, digital security systems and identity verification systems are also evolving. FinTech experts at MoneyConf2016 discussed biometrics playing an increasingly relevant role in the identification of the user, since it is the only system that recognizes that the user is who they say they are using their own device. The future of digital identification points towards a system that connects biometrics with identification document validation.
As this trend evolves and develops, FinTech companies will be able to gain more user confidence and vastly increase their position in the market of the future.