Fintech has unleashed a golden age of innovation in consumer financial services. Highly specialised, free from legacy, and often able to bypass bank regulation, new entrants have gone after every piece of the banking value chain, reducing friction and addressing unmet needs.
The critical enabler for fintech is friction and unmet consumer needs. All else being equal, wherever there is the most pronounced consumer pain we see fintechs gain the most traction. Because fintechs operate at clear cost advantages they can deliver more segmented propositions profitably.
Listed below are the key fintech customer trends enabling fintech growth, as identified by GlobalData.
Lack of trust
Many consumers do not trust their bank to treat them fairly and honestly. The single most important criterion when selecting financial services providers globally is “fair fees and charges.” This is more important than even “quick and easy to do business with” according to our survey data.
Consumers are more empowered than ever before. They are able to compare and contrast products from different providers. This means they can more easily manage their finances independent of any one provider. In 2019, customers are more likely than ever to hold financial products from multiple different providers. However, research from Monzo suggests customers will consider whichever app they primarily use to manage underlying accounts as their “primary provider.”
Comfortable sharing data and using mobile
Many customers remain closed to open banking. However, in other industries willingness to share data exists in direct correlation to the benefits received. This indicates just how quickly adoption could change if new entrants demonstrate what open banking could mean. Examples include access to more credit, on better terms, or better digital financial advice.
Many people are excluded from mainstream financial services
There are nearly two billion unbanked individuals globally. Many people own a mobile phone but are still excluded from day-to-day banking. In developed economies, many people are employed in the gig economy, or are entrepreneurs. For this sector stable monthly incomes are difficult to get and even harder to prove – denying them access to mainstream credit.
Many bank risk models discriminate against women. This is because historically they did not work or only worked part-time. In the US, traditional lenders deny black and Hispanic mortgage applicants at significantly higher rates than white applicants, according to a recent report from The Center for Investigative Reporting.
Heightened digital expectations
Already much digital banking happens outside of proprietary banking platforms. Examples include Facebook Messenger, Twitter, and WeChat, where customers can receive a service and even access products. All these non-bank experiences raise the expectations customers have for traditional bank providers – especially around a more personalised experience.
Green investing and corporate social responsibility
News mentions for terms such as impact investing have risen steadily. Yet our research suggests only 2% of consumers globally indicate that supporting ethical causes is an important criterion when selecting providers (a figure that rises to 3% among millennials). This is small, but fintechs’ cost advantages enable hyper-specialised propositions.
Already new digital banks like Aspiration lead with taglines such as “we don’t use your deposits to fund oil pipelines.” Firms like Clarity AI automatically rebalance portfolios to align with impact goals. Digital money managers could tap into this trend by guiding consumer spending towards ethical merchants, for example.
This is an edited extract from the Fintech – Thematic Research report produced by GlobalData Thematic Research.
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