Financial technology, often referred to as FinTech, has firmly entered generation 2.0. The first generation was about the convenience of managing bank and other financial accounts online. The next level is about revolutionizing the management and processing of loans, payments, investments and insurance.
While making payments by smartphone as opposed to cash or credit cards, represents a very small portion of total U.S. retail sales, the activity has been growing at a rapid rate. A vast amount effort and money is being invested in creating compelling payment systems. This field is often referred to as “mobile commerce,” which includes payments made at retail counters or in web-based shopping carts via mobile devices.
Starbucks has been a great pioneer in this regard, where customers pre-load money into their Starbucks Cards for future purchases. Customers simply swipe the card at the cash register and they’re on their way with a cup of coffee. By 2017, Starbucks had nearly $2 billion in prepaid deposits from customers, and was accepting payment for more than 6 million sales monthly through this technology. The key is not simply offering an alternative payment process, but instead speeding up and making more convenient the entire ordering and checkout process, including the ability to order ahead from your smartphone. This is similar to the seamless ordering and payment conducted via the Uber app. Mobile payment is integral to the entire customer experience.
Another innovation is the new Zelle “peer-to-peer” payment system. This was developed by a group of America’s leading banking companies as a way to let customers send money from their bank accounts directly to the accounts of others. Once the customer is logged into a bank such a Bank of America, there is no need to leave the site to go to competitor Paypal.
Creating simplified investment management tools for mobile users is another hot trend. Companies leading in this area include Aspiration, Betterment, Mint and SoFi. Many of these firms offer “Robo-Investing,” whereby the account owner sets investment goals and computer programs then allocate and manage investments into various types of funds. The goal is to simplify management and reduce the fees that would otherwise be paid to traditional managers.
Arranging personal loans and business loans via non-bank online platforms is soaring. Leaders include LendingClub, OnDeck and Prosper. Artificial intelligence examines the records and lifestyles of potential borrowers and approves loans, for both individuals and small businesses. Loan approval is fast, and the typical delays and inconvenience of bank loan applications is avoided. OnDeck’s platform is so successful that some banks are now utilizing it as the back-end of their own online lending programs.
FinTech being developed for the insurance field ranges from improving convenience for consumers, eliminating the middlemen now dominant in many types of insurance, and giving consumers alternative types of coverage, such as pay-per-mile auto insurance. Leaders include Clover Health, Metromile, Oscar and PolicyBazaar (India).
You’ll find analysis of the latest trends and leading firms in the banking and lending sector in Plunkett's Banking, Mortgages & Lending Industry Almanac 2018 | Banking Industry Overview, and Plunkett Research Online
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