The fintech revolution has undeniably had a positive impact on society. Some of the benefits it has brought to customers are obvious. For example, mobile payment and banking apps have made it much easier for the average person to manage, send, and request funds.
There are also numerous benefits of fintech that are only visible to those who experience them directly or to those who study the industry. Because fintech-based lending firms have access to more data about potential lendees than banks and traditional financial institutions typically do, they can leverage this data to make more informed assessments about a person requesting a loan. Consequently, in many instances, fintech lending firms are more likely to approve certain loans than banks are. This isn’t because these companies engage in predatory lending; it’s simply because they have more information upon which to base their decisions. This has allowed many small business owners (who may not have had access to the necessary funds in the past) to expand their operations and drive economic growth in their communities.
Whenever any technological revolution fundamentally alters a key aspect of a society’s day-to-day life, then that community must quickly adapt to the new landscape. There will always be certain potential risks people must be aware of when using fintech products, however, the following potential pitfalls are among the most common:
Turning Investing into Gambling
Fintech apps have allowed more people to invest in the stock market (and related markets, like the cryptocurrency market) thanks to apps like Robinhood. Unlike traditional brokerage firms, which charge broker fees for every trade a customer makes, Robinhood charges no such fees. The company is able to eliminate this fee because it saves on overhead expenses by not operating brick-and-mortar locations like most firms do. Thus, people who may not have invested in the past due to prohibitive broker fees can now enter the market.
Obviously, easier access to investing can be a positive development for people. If users do their research and invest carefully, they might earn substantial returns. On the other hand, when buying and selling stocks is as easy as opening an app, products like Robinhood might attract users who don’t perform the necessary research before making an investment. These users could potentially lose money if they aren’t careful.
This doesn’t mean the overall impact of these products will be negative. It simply means that those looking to take advantage of them must be cautious. When someone is unfamiliar with the stocks he or she is buying and selling, investing can easily turn into another form of gambling.
Again, mobile payment apps have made the process of sending money or making purchases extremely simple. The benefits of this are clear.
The problem is, the easier it is to perform a task, the easier it is to perform that task thoughtlessly. In the past, making a large purchase typically was a somewhat lengthy operation. If an individual was buying something with cash, then that person had to go to the bank and withdraw the cash from his or her account. This is time-consuming, and it involves the customer actually holding the money in his or her hand, which can make its value seem more concrete. Even if someone wasn’t paying in cash, he or she still had to go through the process of writing a check or providing credit card information, etc.
Essentially, customers had more opportunities in the past to assess whether a purchase was worth the money it cost. This is no longer the case. When someone’s payment app is already linked to a bank account or credit card, that person doesn’t even need to input the account info to make a purchase. Just a few clicks and it’s over. The sheer speed of today’s transactions could make more people vulnerable to impulse buys. Therefore, those who have a tendency to overspend will have to adjust to new payment methods that may not be safe for someone with their spending habits.
Luckily, fintech also has the potential to correct these types of behaviors. Many new financial products can make creating and balancing a budget an easy task. Moreover, fintech investment apps are increasingly incorporating research tools to help new users learn about the assets they’re buying and selling. While some people will have to adjust in order to avoid the few potential negative consequences of the fintech revolution, there’s good reason to believe the overall effect will be positive.