The current landscape of the FinTech industry looks extremely promising. From a simple trend in the late 2000s, FinTech has become one of the main drivers in the finance field, boasting an incredible adoption rate (64% of people have tried a FinTech product at least once) and a high market value. According to Adroit Market Research data, the global FinTech market is on track to hit $460 billion by 2025, and if this forecast is to be trusted, then we have many exciting innovations to look forward to.
FinTech emerged as a sector when banks and other major financial institutions were still paralyzed by the economic crisis. Combining the latest technologies with financial services that people need on the regular, such as lending and money transfers, FinTech startups managed to become the robust alternative that everyone had been waiting for.
But what exactly are all these drivers of innovation that made FinTech so popular and how do they change the way consumers use financial products?
New technologies now interact with the financial field
First of all, we couldn’t talk about FinTech without addressing the main reason why it exists in the first place: technological advancements. For many years, financial institutions like banks were playing by the traditional rules, involving long and bureaucratic processes. Meanwhile, FinTech is powered by innovations such as Blockchain, AI, and Big Data, which not only makes financial products more relevant, but also enhances user experience.
Consumers prefer the innovative approach
Millennials now make up most of the market and are the main consumer base for FinTech products. Growing up with technology, Millennials (and Gen Z after them) prefer modern, innovative companies because they match their lifestyle and don’t tie them down. Instead of going down the bank to see if they qualify for a loan, for instance, many Millennials now prefer the convenience of online loans and would rather compare options from the comfort of their home.
Lower barriers of entry for startups
There was a time when only the big players could survive in the financial sector and there was simply no competing with banks. Now, banks are the ones facing serious competition because there are low barriers to entry on the market and innovative startups can disrupt the financial landscape with new products and services.
Analytics and Big Data empower FinTech players
Thanks to the power of Big Data and analytics, FinTech companies can not only forecast consumer trends and adapt to the market, but also make informed decisions regarding their customers. For example, they can use Big Data to gain insights into the spending habits of applicants and analyze their risk.
Investors love FinTech
FinTech wouldn’t be where it is today without investors. And make no mistake, investors love the potential of this disruptive industry. On a global scale, FinTech has earned more than $54.4 billion, according to a Statista report, and 66.7% of global executives believe that FinTech will impact wallets and mobile payments globally.
What makes consumers want to use FinTech products?
FinTech adoption rates are skyrocketing all over the world. In Canada, for example, FinTech adoption has increased from 18% to 50% since 2017 and these numbers are expected to grow even more in the future.
Here are the most cited reasons why people are happy to switch from traditional financial services to FinTech, according to Adroit Market Research:
– Attractive rates and fees (27%)
Whether you want to open a savings account, apply for a loan, or send money to your friends, FinTechs have more competitive rates than banks. For example, a wave of FinTech companies now offer a 2% interest rate on savings accounts, and this forces banks to keep up. Similarly, FinTech companies often allow clients to make money transfers quickly, with no additional fees.
– Easy access and account setup (20%)
In the age of digitalization, people no longer want to drive down to the bank to have access to loans and other products – and this precisely why so many people cite easy access and account setup as one of the main reasons why they choose FinTech instead. If opening a savings account is as easy as clicking a few buttons from the comfort of your home, why not do it? Even loans, which used to involve long waiting times and interminable queues, can now be streamlined online without the need for paperwork or human interaction.
– Variety of innovative products and services (18%)
It took a long time for the banking industry to understand that people have different needs and that financial services shouldn’t be one-size-fits-all. This is especially valid for the online lending field, which has evolved a lot and now caters to more lifestyles than ever before. FinTechs understand that people want to borrow money for a variety of reasons, so they’ve learned to adapt their products and terms. As a result, the burrowing FinTech sub-segment, which was used by just 6% of people in 2015, increased to 27% in 2019. This trend is most noticeable among individuals, but small business owners are also taking advantage of these perks to choose customized lending options.
– Better customer support and product features (12%)
Customer support and financial services did not go hand in hand, until now. FinTechs have understood that modern consumers want to receive personalized support and offers that match their needs. Even if most startups in the field don’t have a physical office to interact with clients, excellent customer service is available online. This is where AI-powered chatbots play an important role. When visiting a FinTech website, clients first interact with a chatbot, which can solve common queries in record time or, in the case of advanced requests, connect the user to a human representative. Since chatbots are becoming more sophisticated, many clients cannot even notice the difference when chatting via text messages, and actually prefer this form of communication to human interaction because it’s more effective.