If you measure the beginning of fintech as 1886, the industry has had a very long time to get things right. Even if you consider 2007 as the birth of fintech, we have still had 15 years to deliver on the promises of improving and automating banking and finance.
In a panel at FinovateEurope titled, “Power Panel: What Do We All Need To Go Away & Think About?” the Financial Data and Technology Association’s Head of Europe Ghela Boskovich (pictured on the right in the photo below) declared that fintech has failed, citing the millions of underbanked citizens across the globe.
There are, of course, two sides to the coin. Below, we take a look at how fintech has failed, along with the wins the industry has accomplished over the years.
Fail
- Underbanked populations are still left in the dark
There have been hundreds of solutions created specifically to help underbanked populations. Some are very specific, like the ones that help people build up their credit score by reporting on-time rent payments. Others, such as niche challenger banks, offer a host of tools under one solution.
Despite these efforts, 22% of American adults are either unbanked or underbanked. The industry is either not creating effective solutions or not reaching the right people. - Integrations are broken
Even though many U.S. consumers do not know what the term “open finance” means, they are well aware of its implications. With very few exceptions, banks and fintechs don’t share customer data effectively. Users either need to manually input their financial data or they are continuously asked to re-authenticate to make data aggregation possible. - Open banking regulation is non-existent in the U.S.
While Europe has been enjoying the benefits of open banking since its mandates went into effect in September 2018, the U.S. is still behind. However, President Joe Biden signed the Executive Order on Promoting Competition in the American Economy last July. The order urges the CFPB to implement rules supporting open banking. - Fraud is rampant
Consumers have been struggling to safeguard not only their digital identity but also their personally identifiable information and payment credentials since before the dawn of the internet. Fraud incidents have increased dramatically in the past few years, further proving that the industry has a lot to do to stay ahead in this subsector. - Digital identity is flawed
Having users prove they are who they say they are has always been a headache in the fintech industry. Keeping track of login credentials has consistently irked users, and fraudulent account takeovers has proven that a username and a password aren’t enough. While many biometric authentication methods would have seemed futuristic to us two decades ago, many still cause too much friction in the user experience and aren’t enough to keep bad actors away. - Real-time is still a dream
While the blockchain has helped bring some transactions, authentications, and approvals into near-real time, the concept of instant banking activity is still far from reality. Consumers are still waiting three days for bank payments to clear. The U.S. Federal Reserve’s FedNow service has been working on a fix for this for years and is now piloting the solution. However, the target launch date isn’t until 2023.
It’s easy to identify these shortcomings, especially when there’s so much promising innovation to look forward to. However, let’s take a look at some of the ways the fintech industry has fulfilled its promises to make users’ financial lives easier, simplified, and more informed.
Win
- Helped underbanked populations
Though the number of unbanked consumers is still shockingly high, fintech has done a lot to help populations with no access to a bank account. The war on payday lending may be one of the brightest examples of this. Fintech has not only helped to highlight the hazards of payday lenders, the industry also has created tools such as earned wage access to help employees smooth out their cashflow and meet their financial obligations on time. - Supported digital-first customers
The fintech industry has come a long way since the implementation of SMS banking in 2007. Even though it was such as simple innovation, only a handful of banks offered banking via text.
Compare this to where the industry is today. Even the smallest financial institutions offer rich digital banking tools that can pack an entire bank branch’s worth of activity into a client’s smartphone. - Made banking available any time (even if transactions still don’t clear after hours)
By supporting digital-first and digital-only customers, the fintech industry has also helped consumers who prefer to bank in-branch. That’s because users can still accomplish many banking activities, such as a loan application, even after branches have closed. - Provided plenty of employment opportunities for all of the recovering bankers out there
This one is self-explanatory. How many times have you heard someone in the fintech space describe themselves as a “recovering banker”?
Photo by Brett Jordan on Unsplash