The term fintech refers to a broad set of technologies. Many different types of products and services, from mobile payment apps to digital budgeting tools, fall under this classification. In general, fintech products offer alternatives to traditional financial services. It’s much easier to complete essential banking tasks via a smartphone than by traveling to the nearest branch.
That’s one of the main reasons people embrace fintech: convenience. They appreciate that fintech products help them save time. That said, it’s also worth mentioning that fintech products can save consumers a lot of money as well. The following points illustrate how.
Investing apps represent an example of fintech breaking down the barriers between consumers and specific financial services. That’s one of the key benefits fintech offers. As this blog has pointed out in the past, fintech makes it possible for people who are unbanked or underbanked to take advantage of services they may not have previously had easy access to. This can also help developing economies grow more efficiently.
Investing apps achieve a similar effect. For many years, if people wanted to invest in the stock market, they had to trade stocks via a broker, who would typically earn a commission. This made it difficult for some people to invest in the stock market. The fees were simply too onerous.
Apps like Robinhood have changed that. Because they don’t have brick-and-mortar locations, companies like Robinhood don’t need to collect these fees to make money. This has resulted in fee-free investing, something which was not an option until recently.
That’s not the only example of fintech products reducing or eliminating fees associated with certain financial tasks. Many popular fintech products also facilitate transactions that would usually require a substantial processing fee, such as international transactions involving multiple currencies. Some fintech companies have already released products that allow users to perform these transactions while incurring fees that are only half of what they would be if a traditional institution were processing the transaction.
By focusing on scalable, agile solutions, fintech companies are able to reduce expenses that have previously been unavoidable when performing key financial tasks. Traditional financial institutions will have to adapt if they plan on staying relevant.
Fintech products don’t merely help users save money by limiting fees. When used correctly, they can also help users develop better spending habits.
Mint.com is a popular example of a fintech that serves this purpose. While making a budget and sticking to it is key to avoiding overspending, many people find the process of budgeting to be a challenge. Mint has changed that. By making budgeting easier, this product has helped users exercise greater control over their spending and save a lot of money as a result.
Acorns is another example of a fintech product that helps people reduce overspending and save for the future. When users sync their debit card with Acorns (or a similar app), every time they use that debit card to make a purchase, the app rounds up to the nearest dollar and invests the difference in a diversified stocks and bonds account. For instance, if an Acorns user were to make a $9.50 purchase with his or her debit card, the app would add $0.50 to that person’s Acorns account.
That may not seem like much. However, with cash becoming less and less common in the fintech age, many people use their debit cards to make purchases on a regular basis. Over time, these small investments can add up to major savings.
Expanding Access to Financial Advisors
Investing and banking aren’t the only examples of financial services that fintech expands access to. Thanks to innovations in artificial intelligence and machine learning, fintech may soon help more people take advantage of financial advisors.
Financial advisors tend to work with high net worth individuals. Although there are clear benefits to working with a professional to determine how to best save and invest one’s money, not everyone can afford to hire such a person.
That may be changing soon. After all, financial advisors arrive at their conclusions by analyzing relevant data. That’s a task that AI-based fintech products can perform virtually nonstop. Thus, people who may not be able to afford hiring a human to assist them with financial planning could instead get the same services from a robot.
That’s not to say fintech will replace human advisors. It will simply make their jobs easier by helping them work more efficiently. For high net worth individuals, they’ll still serve an essential role.
However, not everyone has a high net worth. Not everyone can afford investing or transaction fees. Not everyone has immediate access to financial services. Up until recently, that meant such people would have limited opportunities to save and invest their money. Fintech has changed that for the better.