The financial services industry has become far more customer centric than it was just a decade ago. You can do virtually everything financially on your phone now that use to require a trip to the bank.
Freedom Financial points out that the focus on the customer is being driving by fintechs. Fintech, short for financial technology, is a group of companies that rose to prominence shortly after the financial crisis. Their ability to bring financial services solutions to market is far quicker than that of traditional banks. This is mainly because of the regulatory requirements that hinder banks.
The Financial Crisis And Fintech
The financial crisis is often credited with giving rise to fintechs. Freedom Financial notes thatChris Skinner claims the first fintech was Zopa, a UK peer-to-peer lending service started in 2005.
During that same time and the following year, other companies such as Prosper and Lending Club launched.
From this, you can see that the financial crisis did not create fintechs. It was a series of events that accelerated the success of fintechs. Namely the launch of the iPhone in 2007 and the financial crisis of 2008.
With the large change in financial jobs, adoption of smartphones, and always on Internet, fintechs began giving consumers what they wanted and much of was do-it-yourself financial services.
How Fintechs Have Enhanced Financial Services
Fintechs have drawn plenty of investor attention. Global investment in fintechs was $24.7 billion in 2016, according to a report by KPMG. In 2010, it was $9 billion.
Freedom Financial mentions that many of the most popular fintechs are payment processors, loan consolidators, lenders, accounting software, and insurance. Below are just a few popular fintechs falling within these categories:
- Ant Financial – conglomerate of various financial services including wealth management, credit reporting, private banking, payments and cloud computing.
- Xero – accounting software.
- SoFi – student loan financing, mortgage loans, personal loans, wealth management, and life insurance.
- Avant – lending.
- Oscar – insurance.
Many of the lending focused fintechs use an automated approval process that can often be completed on mobile phones. Approval usually happens within minutes.
Allowing consumers to complete financial tasks on their own without the intervention of a human assistance is a common theme across fintechs.
Fintechs And Traditional Banks
Fintechs aren’t just stand alone companies. They often integrate with larger, traditional banks. With many fintechs being bought by larger banks, the line between traditional banking and fintechs is becoming blurred.
In fact, Bank of America, a U.S. based bank with $2.25 trillion in assets, is utilizing artificial intelligence in many areas of its business. With the help High Radius, a fintech, Bank of America is able to streamline its accounts receivables processing.
J.P. Morgan ($2.55 trillion in assets) also makes heavy use of fintechs. In 2016, Jamie Dimon revealed that the bank invested $9.5 billion in fintechs.
Freedom Financial says that fintechs have gained traction as both stand alone companies supplying services to banks and as integrated departments within larger financial institutions.