The Financial Services industry was one of the first sectors of the economy to enthusiastically embrace the promise of big data, analytics, and digitalization. Nearly all players initially welcomed the efficiencies and savings of advances like ATMs and direct deposit. Today, disruptive innovation in financial services is reshaping the industry and changing the fundamental rules for how to attract, secure, and serve customers.
DIGITAL PAYMENT SYSTEMS
The true automation of banking began decades ago with Electronic Fund Transfers. Today, digitalization continues to reshape not only how payments are made but who oversees and administers them. Lean and mean tech start-ups and buy now, pay later solutions abound; but trusted brands with deep pockets – including Apple Pay and Amazon Pay – are claiming their share of the market by attracting customers and merchants with their ease of use and lower fees.
THE GIG ECONOMY
Current projections suggest over half of the U.S. population may take on some form of gig work in the next decade. While some argue the gig worker is underserved by financial institutions, the truth is these workers present challenges in areas like credit decisioning and income verification that the industry has not yet solved. Financial institutions that leverage data and analytics to determine new models for assessing gig worker risk will reap significant rewards. Digital approaches will most likely prevail with ease of use, lower cost, and highly personalized services that meet gig workers’ needs and manage risk for the financial institution.
Regulations initially designed to manage risk in the financial services sector continue to change. Financial institutions that traditionally operated in defined geographic markets and catered to the demands of local market segments now have access to a broader customer base. This influx of market competition is transforming once passive consumers into sophisticated buyers. Additionally, recent deregulation has loosened the capital requirements on small to medium financial institutions put in place by Dodd Frank; the changes have resulted in increased liquidity, freeing up funds for financial institutions to lend and invest.
Fintech was once defined as any technology used for back end systems required by financial institutions to manage operations and processes. Over time, fintech has shifted to include personal and business oriented financial services that customers can access on their desktop or mobile device. Up until now, traditional institutions offered a variety of services under a single umbrella including savings, checking, planning, and investment trading. In its most basic form, fintech unbundles these services into individual offerings. The combination of a la carte offerings with technology enables fintech companies to be more cost efficient. In summary, fintech companies are challenging traditional financial services companies.