Here’s an interesting question: What’s the best way to define technology? By its technical capabilities, or by the benefits it promises your company?
Case in point: Fintech.
Wikipedia defines Fintech, or financial technology, as “a line of business based on using software to provide financial services. Financial technology companies are generally startups, founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software.”
The alternative, which commonly happens when innovative ideas are riding the wave of being the next big thing (think “Uber”), is to define Fintech by the – rather dazzling – lure of the benefits it promises. Benefits like lower costs, the democratization of finance, and consumer empowerment. (Sounds very “Uberish” when you think about it.)
But before you’re blinded by the promises, take some time to look at them and see if they stand up.
Can we achieve lower costs with Fintech?
In short - Yes.
The coolest Fintech start-ups are all about digital offerings, not expensive brick and mortar tactics. Financial products can be offered through a lower cost model too. Roboadvisors, for example, offer fees of .7% for the first $100,000 invested, or a minimum $60.00 a year, and these fees decline as balances increase. Compare this to the traditional fee range for mutual funds of 1.5% to 3.5%!
In the current model, the largest players in the financial world enjoy greater control as well as security (just look at how they survived the financial crisis of 2008-2009.) But that same model has not always been kind to the ordinary person.
Enabled by Fintech, new lending models such as peer-to-peer have eliminated banks as a middleman and been shown to be more accessible to the masses. This is particularly true when we look at emerging markets. In China alone there are over 1,500 peer-to-peer lending companies, including Lufax.
So there is room for another model for democratization of finance to make lending, capital investing and other products more readily available. And these models play by different rules.
Remember the old Jimmy Stewart movie, “It’s a Wonderful Life”? The smaller “Savings and Loan” companies were more personal. Their managers knew their customers and provided loans for them based on that knowledge.
Today, decisions are made by models – not individuals-- which support the bank's profitability and are not always in the customer’s best interest. As long as they can make their monthly payments, loan applicants are approved.
But is this consumer “empowerment”, or consumer ‘”impoverishment”? The demand for empowerment by today’s consumers, combined with low interest rates, tells today’s models (which are not influenced by an old-fashioned knowledge of the applicant) to approve the loan requested. The result is massive debt.
According to a Bank of Montreal poll the average Canadian owes $92,699.
So it appears that there are limits to Fintech's ability to deliver on at least two of its three major promises. But before you think we’re anti-Fintech – and we’re anything but - we should discuss Fintech's ace in the hole: its ability to improve financial literacy.
A digital Fintech experience makes it easier for consumers to understand the financial products they need than ever before.
At BLUERUSH, we have a suite of products to nail this home. We are using our ActivDialog™ platform to act as a digital, human-like coach, helping consumers fully understand their financial options so they can make the best choice for them. Here's how it can be used. It’s like getting the best advice, from the best advisor, on their best day -- each and every time they use it. When that consumer becomes a client, we employ Fintech to personalize their experience throughout, such as through our 1:1, data-centric, personalized video platform INDIVIDEO™, and more personalized and relevant client emails with DigitalReach™.
The digital experience is tied to real people at key moments in their decision-making process. We employ omni-channel strategies and rely much more on digital.
The end result? Lower costs, but above all: higher consumer empowerment through increased financial literacy.
What about democratization? Save that one for another day.