It will change how you save money. It will change how you spend money. It will change the entire world.
When talking about the fintech revolution, people can get pretty enthusiastic. And make no mistake about it, there’s good reason to be excited. Fintech will have an undeniable influence on the everyday lives of billions, not to mention the global economy.
However, in our hurry to sing the praises of these new approaches to financial services, it’s easy to overlook the challenges. If fintech is going to fulfill its potential, everyone from startup founders to investors must address certain key truths.
Some People Won’t Have Access to Fintech Services
Fintech services are undeniably useful tools for underbanked and unbanked populations. Those who make limited use of traditional financial institutions and services—as well as those who don’t use any such services at all—will have more opportunities to manage and invest their funds, thanks to the convenience offered by fintech products.
However, most people who don’t use financial services have low incomes. Their financial difficulties play a key role in preventing them from opening banking and investment accounts.
These same people may not have the funds to purchase the technology needed to take advantage of fintech services. Given the near-ubiquity of smartphones and PCs, it’s easy to forget that there are still many people who can’t afford them. Even if they can, they can’t afford the Internet access that makes the technology truly useful. Unfortunately, virtually all major fintech services require users to have access to computers or smartphones.
On the one hand, these devices have continued to become more and more affordable for literally decades now. The amount of people unable to afford them is steadily decreasing. On the other hand, that doesn’t change the fact that as of now, there is still a segment of the population that has essentially no means of using fintech products. Hopefully, innovations will continue to make consumer technologies cheaper and cheaper, so that more people can access them.
When a company offers a financial service, it must abide by significant regulations and laws. This is true for traditional banks as well as fintech companies, but the regulations for traditional banks have long been established. The regulatory environment for the fintech industry is still evolving, and there’s a great deal of uncertainty about its future direction. Complicating matters is the fact that the federal government has been slower to act than the states of California and New York, the hubs of the fintech industry in the US. There’s also the question of whether government regulators should treat fintech companies as IT service providers or financial companies—or both.
For young fintech startups, this situation can easily slow a company’s momentum. The founders may have the technological and business skills to develop a product customers want, but there’s a good chance they won’t have the financial and legal experience necessary to bring this product to market in a reasonable timeframe.
This is one of the reasons why collaboration and cooperation between fintech startups and banks is essential. Startups may offer services that better suit the expectations of today’s customers. Banks can offer their expertise and political clout, helping startups cut through the legal red tape that slows their growth.
True, late adopters present a challenge in any new tech revolution, but in the case of fintech, they can be an especially difficult nut to crack.
Obviously, there is a wide range of financial services that a fintech company could offer users. It’s almost certain that many of the fintech products that will gain popularity in the future will offer services most people can’t even predict right now.
However, a good number of the services these companies may offer will likely relate to issuing and receiving payments. Already, products like Venmo and Paypal offer users easy ways to transfer funds.
Fintech optimists often envision a future in which most or even all financial transactions are made via these types of products. That future is still far off, though. That’s because there will always be late adopters who are unwilling to embrace a completely new way of accepting and spending money. Decades-old businesses, whose owners may be somewhat behind the times in terms of tech knowledge, probably won’t ditch their cash registers and physical invoices in favor of an app that may seem overwhelming and foreign to them.
However, as older generations retire and younger generations take over management roles, efficient fintech payment services will become much more common. There may indeed come a day when the vast majority of financial transactions are conducted via an app.
None of this is to suggest that we’re being naïve about the potential for fintech to change the world. The industry has real power to revolutionize the economy and bring financial services to a broader scope of the population. These observations are worth making simply because they identify problems that startups will have to keep in mind in order to set realistic goals and offer genuinely valuable services.