The promising directions for future Fintech growth and major factors for it
In our previous article, we discussed Fintech and its development tendencies. Hence, we believe there is a need for further discussion on the subject.
Fintech has achieved mass adoption in most markets and has become popular in a large number of countries. However, adoption rates vary by market. The presence of tech-literate clients and markets that are underserved or unhappily served by conventional financial service (FS) companies affects geographic adoption. For example, today, China and India have the highest adoption rates. Much of their success is the result of tapping into the tech-literate, financially underserved populations that make up a large percentage of the population in emerging countries.
You may ask what is happening in other markets. The UK, for instance, used to be one of the leaders (when it comes to Fintech), but regulators and related factors influence adoption dramatically. Government support in the UK helps Fintech initiatives with new licensing regulations and infrastructure developments such as open APIs. Similar things happen with the US market, and we’ve mentioned this in our previous article (part 1).
Global investment in Fintech continues to rise. Mature areas of Fintech (payments and lending) are seeing increased investments and strong exits. Open banking, in particular, will see a lot of activity – both from traditional FS firms looking to partner with Fintechs and from Fintechs using open banking to extend their value proposition.
It is no surprise that use of Fintech products/services is higher among younger consumers, many of whom have not developed strong relationships with conventional providers and are also more tech savvy. This consumer segment has also adopted a digital-first approach in other areas of their lives (i.e. online shopping, ride sharing, music streaming). The combination of these factors increases adoption rates for this segment.
A stronger preference for traditional FS can be a barrier to adoption by older consumers. Concerns with switching costs and friction also factor into their lack of interest in newer Fintech services.
While age may affect adoption of Fintech services, experts worldwide believe all ages share concerns on matters such as data security and privacy. And, some services (like comparison sites) are popular across multiple demographics.
As Fintech brands and services become better known, it is believed that adoption rates will accelerate. Some experts also anticipate that Fintech users will adopt more products and services as their satisfaction with the ones they use increases. As Fintech firms expand and diversify their offerings, that will drive higher usage. Products that resonate with early adopters will also generate recommendations, supporting growth through word of mouth.
What do clients expect from it?
This is an important factor related to consumers’ perceptions about using the technology, how it improves their work efficiency, and how it fits into their daily lives. Perceived usefulness has a positive impact on consumers’ adoption and intentions.
While similar to perceived usefulness, this represents the degree to which consumers feel comfortable and make efforts to learn how to use Fintech services. Consumers want to know if the experience is better than the conventional banking experience and if it meets their needs. If users think Fintech services are convenient, friendly, and easy to use, they are more likely to adopt them.
There is a strong correlation between consumers’ judgments and tendencies about Fintech companies and their propensity to adopt new technologies. Fintech firms must keep that in mind as they market their services.
Support from governmental institutions
Government has been one of the biggest drivers of Fintech adoption. It can increase the credibility and perceived reliability of products and services and improve the publicity of the application. In the U.K., the government has played a role in the definition of the technology (including PSD2 and open banking) and has provided financial backing of the infrastructure, thus making Fintech firms more acceptable to potential customers.
Due to the fact that client data is involved in the provision of Fintech services, trust is very important. If there is a perception of risk, thus a lack of trust, that will negatively affect the adoption of new technology. The risks are associated with the use of personal info, transaction info, and other privacy data, and misuse can lead to serious consequences.
Major factors for Fintech growth
Generally, consumers have been the real winners since Fintech products/services entered the market. On the other hand, not all Fintech companies have benefited, so some of them will not be winners. Some will demonstrate staying power, while others will fail to find their place in the market. As Fintech providers reach their next phase of growth, they will face various challenges.
Fintech companies must understand the importance of data. The ability to access and make sense of data powers Fintech’s acceleration as an industry. Startups are giving the incumbents a run for their money, not because they’re generating or accessing more data, but because they’re looking at it differently and using it in new ways. When a Fintech company gets clarity around data, makes sense of it, organises and cleanses it, and combines traditional and non-traditional sources in new ways, it can out-manoeuvre and out-innovate incumbents.
To continue to grow, Fintech entrepreneurs also must maintain their operational health. Innovation will remain an important part of the mix, but it is equally important to have the technology and processes in place that enable companies to scale and ensure they continue to provide the experience customers have come to expect. This includes business continuity, regulatory compliance, data security, and the ability to work with other vendors or satisfy government regulators.
The companies that survive must increase consumers’ awareness of their products and services to achieve broader adoption. To accelerate market advantage, they must generate momentum through market visibility. Relationships and trust play critical roles in adoption, and endorsements from “champions” is vital – in both online and offline social networks. It is also important to build a distinct identity, because the market is getting crowded. Consumers have a lot of choices, and there is some confusion in the market. Successful Fintech providers will also need to create frequent interactions with customers, above and beyond today’s needs-based transactions, to strengthen customer relationships. Today’s customers want a Financial Services provider to be clairvoyant and anticipate their needs. Banking is taking more of a life stage/life event-based focus, and Fintechs must be able to engage with customers in a more personal manner as their needs change. This will enable Fintechs to play a more central role in their customers’ lives.