In the first nine months of 2015 alone fintech startups raised $10.5 billion from venture capitalists and other big investors. But are real people actually using their products?
In the early days of fintech companies plowed their often sizable war chests into attracting young,well-off consumers before the banks got to them. Now, as the space matures, they are looking to expand their reach. This shift may be one of the reasons a report from Ernst & Young says fintech adoption could double in the next year, from 15.5% of digitally active users today.
EY asked 10,131 people across Australia, Canada, Hong Kong, Singapore, the UK and the US about their use of fintech products, which EY defines as services developed by “non-bank, non-insurance, online companies.” A respondent was considered active if he or she had used two or more financial technology products in the last six months.
They also asked respondents about their intentions over the next 12 months, and roughly as many people as are currently using them said they plan to try new fintech products this year. “It can be difficult to quantify intentions, but we find the responses directionally significant,” explained Imran Gulamhuseinwala, EY’s global fintech lead in an email.
The top reason non-users gave for their non-use? Lack of awareness.
For the uninitiated: At the broadest level these well capitalized companies want to change the face of financial services by using technology – as they tell it — to speed things up, design a better customer experience and charge a lot less than the big guys. On a more granular basis, each company is tackling one or two services traditionally provided by banks. There are companies rethinking cross border money transfer, stock trading and mortgage lending, to name just a few.
“The FinTechs are focused on all under-served niches,” wrote Gulamhuseinwala. “The fact that they are skewed toward city-based, young professionals will in part reflect their reliance on variable cost marketing strategies such as digital marketing, word of mouth and referrals. As successful FinTechs become better funded and more established, they can afford fixed-cost marketing strategies such as TV advertising and sponsorship, which will put them in more direct competition with the banks.”
People from 25 to 34 years old were the most likely to be active fintech users with 25% saying they had used two or more such products recently. On the other end of the spectrum 5% of people 55+ were active. Current users also tend to be higher-income. Use is strong for folks who make more than $150,000 a year, with 44% adoption across age groups. Significantly, fintech firms can count more than half of high-income people between 18 to 54 as users.
This shift in consumer preferences could have big implications for the traditional financial services industry. “The adoption of FinTech products is relatively high for such a new sector, so the risk of disruption is real,” noted Gulamhuseinwala. “As FinTech continues to catch on among consumers, traditional financial services companies will have to reassess their view of which customers are most at risk from the new competition and step up their efforts to serve them effectively.”
by Samantha Sharf | Forbes