Technology’s impact on our daily lives is undeniable. Tech’s reach encompasses everything from our social interactions and the way we work to how we shop and access information.
Technology’s influence may be felt more deeply in the financial sector than in any other industry. Driven by startups bent on innovation, fintech is giving the traditional financial services model a run for its money. The resulting disruption has made a lasting impression on five distinct aspects of the financial industry.
The evolving banking landscape
Banking has undergone a significant transformation under fintech’s watchful eye. The days of waiting in line at the teller window have been replaced by online account access, mobile banking apps and the rise of direct banks, which eschew brick-and-mortar branches in lieu of remote banking services.
Online banks offer consumers a combination of minimal fees and convenience that traditional banks are increasingly pressured to match. That pressure has lead a number of big banks to adapt in order to keep pace, which has also created new opportunities for financial institutions to capitalize on tech’s appeal.
In April 2016, for instance, Goldman Sachs announced it would open its own online retail bank following the acquisition of GE Capital’s online deposit platform. In launching GS Bank, Goldman is angling to carve out a share of the online banking market.
The benefit of embracing fintech’s possibilities, rather than shying away from them, is the creation of mutually beneficial relationships. As financial institutions branch out into the online space, they’re positioning themselves to better appeal to the needs of consumers. That in turn may serve to bolster their bottom lines.
Fintech brings financial advice to the masses
Financial planning no longer exists exclusively in the domain of the elite. Fintech delivers a new degree of accessibility and transparency to consumers seeking advisory services across all stages of wealth accumulation, from new earners to those who are ramping up to retirement.
Through incorporation of digital tools, advisors now have the ability to scale their services accordingly to provide personalized advice based on individual client needs. For instance, advisors can leverage big data to create in-depth analyses of client accounts, which can then be used to proffer solutions to help clients reach their financial goals. Technology is also facilitating enhanced communication and collaboration, enabling advisors to act more efficiently.
Alternately, digital advice models allow investors to select their own unique path for building wealth while working with an advisor on their own terms. This shift is largely fueled by the rise of independent robo-advisory platforms. A 2017 Accenture report found that seven in 10 global consumers welcome robo-advice for banking, insurance and retirement services.
While robo-advisors have made a splash in the advisory scene, big banks, brokerages and mutual fund companies have also joined the fray. Charles Schwab, for instance, recently launched a hybrid human-robo advisory service. Moves like these are further examples of fintech’s influence on how financial institutions are evolving to better serve investors’ needs.
Bringing innovation to lending
Marketplace lending has injected new life into the lending industry as fintech companies like Prosper and Lending Club move to compete alongside big banks. Through 2020, the peer-to-peer lending market is expected to grow at a compound annual growth rate (CAGR) of 53.06%.
P2P lenders have opened new paths to consumers and business owners who, for various reasons, may be seeking an alternative to traditional lending options. Stricter lending standards, for example, may push some consumers to purse a P2P loan when their credit rating proves problematic for qualifying for a bank or credit union loan.