Wallet or Smartphone: The FinTech in Front of the FinTech
I’m on line at Starbucks and reach to pay for my Triple Venti Nonfat Latte, only I don’t reach for my wallet, I reach for my #smartphone. My poor wallet is suffering from some serious neglect these days. It occurred to me that if I didn’t have a weakness for food trucks, I probably wouldn’t use cash at all. The apps on my smartphone are now my proxy for a bank, holding and moving money in one click – the new way to truly “bank on the go.”
Think of the applications you use on a daily basis. How many of these apps have the power to transfer money? Undoubtedly, more than you realize. The 1.5 million users utilizing the payment app, Venmo, transferred $1.3 billion in funds last quarter alone. As a strong supporter of the #FinTech Revolution, I understand its magnetism, but it doesn’t take an aficionada to see the technological insurgence has already started.
Consumers are embracing self-management of their financial resources in ever-greater numbers. This increasing trend means #banks have greater competition for consumer mindshare and, as a result, reduced relevance and potentially reduced income. Individuals value transparency and choice; having their data available in user-friendly tools that can be accessed anywhere is powerful. The problem for the banks is that they aren’t able to provide these same types of tools with the same currency or quality due to lack of resources and slow moving compliance departments. Now, while banks begin to work on their next generation platforms in this hyper-connected age, FinTech apps are gaining ground quickly. For instance, the online payment system, PayPal, has singlehandedly become the new face of banking, holding more consumer money than most major Financial Institutions. The banking industry hasn’t experienced such a profound transformation since 1969, when the ATM first opened.
As #technology continues to pull us away from big banks society willingly complies, but how can we be sure our money and personal data are secure? Millennials, who represent more than a quarter of the general population, use these payment apps as an alternative to a savings accounts, storing their money for future use, without the fees and restrictions associated with major banks. However, these apps, often run by a third party software and not on a bank’s federally insured regulated infrastructure, can be risky. When transferring and holding money in a FinTech app, the user takes the risk. As competition increases and technology advances these apps come and go over night, but what happens if your money is stored in an app that one day disappears? Or if the app temporarily has custody of your funds and you can’t access them? Or if a sender cancels a transaction? Most users do not realize their money is not insured and funds cannot be easily recouped. Also, as financial data becomes more accessible, so does the possibility of security threats. To most, the risk, sometimes unknown, is worth it for faster, more convenient service.
There is good news – the potential for banks and FinTech apps to work together is endless. Banks can endorse these apps and give them a safe and insured platform to run on. The data behind these apps is also extremely powerful. Using financial data aggregation platforms, like EEI’s Trusted Network™, banks and FinTech apps can partner to perform advanced analytics. Enriched data can be used to determine spending capabilities and therefore help users make educated financial decisions. FinTech Apps aren’t going away, banks will need to be flexible and innovative in their response to consumers, all while learning to share customers’ revenue and profits.
As with everything else, we are seeing this paradigm shift with the early adopters, but before long it will be common practice with the laggards as well. All consumers want choice – what car to buy, what brand to wear and even what personal financial management apps to use. What drives choice? Awareness, branding, but most importantly ease of use and convenience. Despite operational and financial risks, the use of FinTech apps has increased. Let’s just hope our cellphone batteries and FinTech companies don’t die before we have a chance to pay the bill! 🙂
This is part of my FunTech blog series exploring the shift in technology and culture in the financial services industry.
[linkedinbadge URL=”https://www.linkedin.com/in/jaimieanzelone” connections=”off” mode=”icon” liname=”Jaimie Anzelone”] is Business Manager, Office of the CEO of Enterprise Engineering Inc.
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