When discussing the fintech revolution, everyone from casual consumers to industry experts often talk about the impact fintech products and services may have on the continued relevance of traditional financial institutions. Many point out that fintech’s rise doesn’t exactly spell doom for banks.
Traditional institutions can survive this technological shift by cooperating with fintech startups. The bank benefits from the innovative approach a fintech company brings to the table. The startup benefits from the help an established bank can provide in terms of navigating regulations.
Tech Giants Are the New Players on the Fintech Scene
This is an important topic to discuss when talking about fintech. It’s also important to not overlook the fact that startups and established financial institutions are not the only players in this game. Increasingly, major tech companies are also beginning to offer financial services to users.
That doesn’t mean they are exempt from the challenges affecting both startups and banks. For instance, social media companies that have tried to offer financial services have also been slowed down by regulatory issues.
The reason they’re still worth paying attention to is because many of these companies already have strong customer bases. This may be key to getting more people to adopt fintech products.
The Importance of Trust in Fintech
People have been typically eager to embrace fintech thanks to the degree of convenience these services provide. Others have been reluctant to try new products for a very simple reason. This is because they’re not sure they can trust an unfamiliar company to handle their funds carefully.
Establishing trust may be easier if the company providing the financial service is one a customer is familiar with in another context. Granted, offering a social media platform is not the same as offering a fintech product. A company that’s trustworthy for other reasons may still fail to handle a user’s financial information responsibly. The case if the team behind its fintech product must still take crucial steps, such as prioritizing security.
Still, the rise of tech companies offering financial services could signal the beginning of a new era in fintech. Let’s consider some examples to better understand how this trend may affect the industry.
Facebook is one popular tech company that already allows users to transfer money via its platform. Although the feature is essentially similar to those offered by such companies as Venmo, offering this service via a popular social media platform makes it easier to reach users who might not otherwise want to download another new app. They can instead simply transfer money through a service they already use.
It appears Facebook’s early attempts to offer fintech products may have been successful. The company is continuing to pursue a role in the financial services industry by developing Facebook Coin, its own unique cryptocurrency.
That said, some people are skeptical that Facebook will be able to continue serving users in this capacity without some degree of pushback. Users may have previously trusted Facebook to facilitate money transfers because the company was known for implementing very effective security measures.
However, recent scandals have eroded user trust in Facebook. We won’t know if Facebook Coin is going to be successful until it’s actually made available. However, it’s entirely possible that recent history will limit Facebook’s ability to rise to the top of the fintech food chain.
Amazon Small Business Loans
Not that Facebook is the only major company trying to get in on the fintech revolution. Through their digital wallets and payment features, giants such as Apple and Google already offer some degree of financial services.
Amazon is also joining their ranks by developing a small business lending platform. Already, Amazon has provided small businesses with loans totaling greater than $1 billion. It’s easy to understand why businesses like Amazon are offering these services. They often stand to benefit both directly and indirectly in numerous ways.
Consider the example of Amazon. The loans it provides are typically to small businesses which sell goods via its platform. By loaning them money, they stand to grow, selling more products as a result. That’s good for Amazon. Additionally, Amazon gets to collect interest on the loans it offers. Because traditional lending firms have been less inclined to support small businesses after 2008’s financial crisis, Amazon has the opportunity to serve a currently underserved customer base.
The Future of Tech Giants in Fintech
Again, the degree to which these tech giants will shape the future of the fintech revolution remains to be seen. They still need to contend with regulations. Additionally, recent history has demonstrated they aren’t always as capable of maintaining consumer trust as we once assumed.
That said, there’s no denying these companies already have the support of many customers throughout the world. That gives them a chance to bring fintech products to more people than ever. We’ll have to wait and see if they succeed in doing so.