State of US Fintechs

The State of the US Fintech Sector

While I mentioned the huge growth of Chinese fintechs in a previous blog, I didn’t want to take away from the enormous growth that the US has seen in the fintech sector. In recent years, dynamic growth has not only presented consumers with new products, but it has also driven change across the entire US financial industry.

A recent study by EY Financial has shed some light on the biggest factors for fintech growth and their effects on the future of commerce in the US. Here are a few takeaways:

Increased Usage

One of the main things driving the growth and adoption of fintech in the US is awareness. Globally, 96% of consumers are aware of fintech offerings whether they be payment apps, alternative bank accounts, or insurance. Although the US adoption of fintechs isn’t the highest globally, we have shown a steady year over year growth since 2017, peaking at 46% consumer adoption in 2019.

Where is the adoption the strongest? While three out of four consumers use fintech payments and transfer services in recent years, other fintech applications have also grown with insurance being the second-most used fintech. Part of the boost in insurance adoption surrounds the use of mobile apps to file claims and request assistance, coupled with companies rolling out devices to track your driving habits to give more accurate measurements to calculate your rates. 

Among other applications, adoption has grown but budgeting/financial planning and borrowing are the two least used applications. Some experts speculate that the value of face to face interactions in those sectors could be the reason for slower adoption.

From Disruptor to Valid Competitor

In the US, Fintechs are no-doubt still seen as disruptors to the financial system. But in recent years, their position has shifted from unproven startups to valid alternatives to traditional financial institutions. The competition presented by fintechs is unique, as many banks and fintechs alike provide multiple services. Most consumers who have adopted fintechs or are willing to state that they also currently use traditional bank services. The change comes when they need a new service, they are willing to look at fintechs before their current banks.

The reasons that users are willing to seek greener pastures range, but some of the most common are that consumers want to find a better rate and can more easily compare rates, they want the availability of digital services, and that they want a one-stop-shop for their services. Fintechs make bundling services more simple, especially when they streamline the application process with the personal info they already have. 

Before the recent growth, the single largest reason for users adopting fintechs over traditional banks was the ease of use and innovative products. Now with more data backing them, fintechs are able to offer cheaper products and more attractive rates than banks, and consumers can sign-up from their couch, rather than finding a branch during banker’s hours.

Partnerships with Financial Institutions

Despite the growing legitimacy of fintechs in the eyes of consumers, banks aren’t sitting back and watching. In fact, many are now offering their own fintech products or partnering with fintechs to bring new options to their existing customers. The common bond between banks and fintechs is that they aim to be the solution to a range of challenges for consumers. What was a differentiator for banks a few short years ago, offering innovative, fintech-inspired products is rapidly becoming a necessity. Think about the recent changes to online and mobile banking, the ability to take a picture of a check to make deposits is all but universal now.

While banks may have been slow to change, they have emulated the insurance industry’s adoption of fintechs. Insurance companies were some of the first to add fintech offerings to their product lines. Companies like Esurance came as disruptors but were quickly acquired when the demand became obvious. Now almost every major auto insurer has a mobile app with a range of services from accident reporting to roadside assistance. Banks have begun to build partnerships in the same way.

Fintechs need to partner as well, as they need access to charters to make financial transfers work. These mutually beneficial partnerships have also allowed consumers to enjoy convenience when their data can be shared between services. While it may sound like a security risk, many consumers have stated that they are comfortable with their personal info being shared between banks and fintechs if it means they see better rates or available products. As with many changes, these partnerships are all fueled by the demand for convenience by consumers.

Businesses Adopting Fintech Offerings

Other than consumers, the growth of fintech adoption has been largely among small and medium enterprises (SME) around the world and in the US as well. Many of the same types of services that have enjoyed success in the consumer market are also seeing widespread growth in the SME sector. For markets like the US where fintech growth is steady but recent, the main reason SME owners turn to fintechs are on-demand services, compatibility with other services, and the range of features fintechs provide.

Business owners are busy and for many, finding time within business hours to handle financial and insurance vendors can mean lost business. Fintechs give them the ability to access services 24/7/365 and quickly respond to whatever challenges arise. What’s more, fintech companies tend to be on top of the latest industry advances, making them as agile as their SME counterparts. When the industry throws a wrench in the plans of a business owner, they don’t want to rely on a partner that is slow to change or unaware of changes altogether.

As the US fintech sector continues to grow and drive change across the entire financial system, one thing remains clear, ease of use is king and even the best services will be underutilized if the end-user doesn’t feel like they are being helped. The well-established incumbent financial system in the US may have slowed the start of the fintech revolution, but today, fintechs are thriving and innovating every industry they touch.
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