Many people would not have adequate access to bank accounts without fintech innovations. Recent developments have increased inclusivity for the financially disadvantaged.
Speaking with Digital Journal, Steve Smith, CEO of Finicity, shares with us the top four trends he’s seeing drive the most financial inclusion. These are: alternative data, open APIs, mobile banking, and blockchain.
Digital Journal: What is the current state of the financial sector?
Steve Smith: It’s clear the digital disruption that we’ve seen in other industries has fully taken hold in financial services. One of the key outcomes of this digital era is that consumers now have high expectations on speed, simplicity and depth of control with their interactions. This is true in financial services, and as a result we’re seeing greater innovation and competition.
DJ: What challenges do FinTechs present to established finance companies?
Smith: Again, what we’ve seen in other industries has a parallel here, as the FinTech companies — or more appropriately the digital disruptors — are pushing the industry forward. The challenge for more established organizations is to keep pace. The rate of change is exponential, and it will only accelerate over the next few years. This is a good thing for everyone involved, but more so for the consumers of these services. We’re going to see individuals, families and organizations who are more in tune with their financial situations and are better prepared to make smart financial decisions. All of this has tremendous potential to improve the financial health of everyone.
DJ: How are established businesses responding to FinTech disruptors?
Smith: It really depends on the business. There is less of a battle between FinTechs and established organizations than you might think — and more partnership. We are seeing more of the well-established financial institutions interacting with FinTechs by setting up partnerships and through acquisition. Additionally, the real leaders also have made major investments in their own digital teams.
So, if an organization doesn’t have real effort behind partnership, acquisition or in-house development, then they’re behind. Again, with the pace of change, now is not the time to be a laggard. We’re also seeing the industry come together to create an appropriate, innovation ecosystem across financial institutions and FinTechs.
A great example of this is the establishment of the Financial Data Exchange (FDX), which is a broad industry organization that is coalescing around a common standard for secure financial data sharing. Large banks, FinTechs, data aggregators, credit bureaus, GSEs and others with a common vision have banded together to help all participants — and ultimately the consumers.
DJ: Do FinTech products appeal more to certain demographics, say millennials?
Smith: Well-designed products appeal to just about everyone, so I’m not sure there’s a specific demographic where a company will see success. That said, clearly we have a generation of people that are digital natives. So yes, this group will have greater expectations for a digital experience. In the mortgage lending industry, there is a lot of conversation around the emergence of Millenials as the next significant wave of home buyers. The industry is gearing up for this by looking at emerging technologies and solutions that will help deliver a simple and pleasant experience.
DJ: Which start-ups are most promising?
Smith: I think it’s more about financial disruptors. There are some great companies, both emerging and established, that are impacting the landscape. The newer entrants include Kabbage, Square (which is more mature), Lendio, etc. However, looking just at start-ups is too limiting. There are some great “internal” startups in major organizations that are dramatically changing the landscape of financial services. One of my favorites is Quicken Loans. It’s hard to point to another organization that is pushing the market — in this case mortgage lending — harder than Quicken Loans.
The have fully embraced digitization and have come up with a great model that combines the best of new tech with the personal touch consumers expect in the mortgage process. With their launch (pun intended) of Rocket Mortgage, they fundamentally changed the industry and ratcheted up consumer expectations.
DJ: Have any notable FinTechs become scale-ups?
Smith: In addition to our company, Finicity, I’d say some examples would be Venmo, Kabbage, Gusto, etc. Frankly, the list goes on and on. There is so much innovation within the space. It’s a great time to be in financial services, and the bottom line will be exceptional customer experiences.
DJ: Have any notable mergers or acquisitions taken place?
Smith: Well, the most notable is Fiserv and First Data. This will have significant ramifications for the payments industry, and it will be interesting to watch how the organizations come together.
DJ: Has the rise of FinTechs led to increased cybersecurity concerns?
Smith: Yes. First off, there are more organizations out there with more data. Additionally, we’re seeing more financial data being generated through new and emerging services, and we’re seeing this data shared across the ecosystem. While all of this increases cybersecurity concerns, it’s also led to the rise of technologies and organizations to address it. Mentioned earlier, a great example is the Financial Data Exchange (FDX). This organization, spanning the entire ecosystem, is totally keyed in on protecting consumer information and data during the data sharing process.
