FinTech: Growing and Empowering New Consumer Segments

By David J. Blumberg, Founder & Managing Partner, Blumberg Capital

In recent years, we’ve seen an unprecedented amount of innovation within the financial services sector. From advancements in mobile payments and blockchain technology to a proliferation of connected devices and advancements in artificial intelligence and robotic process automation, the finance industry has dramatically changed from a decade ago. It’s more digital. It’s more mobile. It offers more variety of services. It’s easier to use. And it’s more accessible to new segments.

But, just how has it transformed? To find out, Blumberg Capital recently updated a survey from 2017 to gauge consumers’ current opinions of fintech and how they have changed over the past couple of years.

Consumer comfort with fintech is on the rise  

If any conclusion jumped out the most, it’s that consumers are increasingly comfortable using fintech solutions for their everyday needs.

In fact, 73% of respondents said that they prefer to handle their financial dealings online – up from 68% in 2017. Why is this? First and foremost, fintech startups have extended banking services to a broader swath of previously underserved consumers. Fintech applications have democratized financial services giving many more consumers the opportunity to transact, save, borrow, improve their credit and invest. Furthermore, it makes financial services education more intuitive and approachable.

Another important insight? Today, 85% of respondents feel that the latest financial technology will improve American’s financial standing by making financial transactions easier and less expensive. This is an increase of nine percentage points from 2017. Fintech companies are investing in R&D and better user interfaces – and it’s clear that the improvement is appreciated.

The underlying benefit, unequivocally, is that modern financial technologies empower consumers with more flexibility, more options and more control over their finances than ever before.

Fintech flourishes with opportunity – for entrepreneurs & VCs alike

As consumers become more comfortable with and welcoming of fintech applications and services, there will undoubtedly be higher adoption rates for existing solutions and increased demand for new products and services.

The survey results show that a majority of consumers (58%) feel that traditional financial institutions don’t evolve fast enough to keep up with their needs and expectations, up from 51% in 2017. To us, this indicates that there is room for startups to continue to innovate and disrupt the financial services market by providing greater convenience, delivering advanced security and lowering costs.

Further, the public has flipped on the issue of privacy. A surprising 46% are confident vs. 45% not confident that their financial institution keeps information secure. This opens the door even further for more digital innovation. While data breaches are on the rise, modern consumers see breaches as simply a cost of convenience – and they are willing to take that risk.

What does the future hold?

These survey results reveal that fintech continues to grow as a category and serves growing demand fueled by growing consumer acceptance. In fact, the trends consistently demonstrate that it will continue to pick up speed and mature as technologies like artificial intelligence, machine learning and robotic processes automation power much of the innovation responsible for new fintech improvements and expansion.

We think we’ll continue to see new options and functionality bringing financial services to previously underserved markets. We’re already witnessing a number of companies helping formally underserved markets using machine learning. For example, Fundbox uses it to automate borrowing for small businesses and EarnUp uses it to automate loan payments to get borrowers out of debt faster. In both cases the cost structure is lower, allowing these companies to offer services that may have previously been cost prohibitive.

Notably, consumers (and SMBs) are increasingly open to innovation in the crypto and blockchain space. While, so far, it’s a market mainly of interest to speculators, those outside of the U.S. and large corporations, 46% of consumers said that cryptocurrencies are a viable alternative to the traditional system of currency (up from 35% in 2017). Our interpretation is that Americans don’t necessarily feel cryptocurrency will replace the U.S. banking system, but that they are increasingly comfortable utilizing cryptocurrency as much as they would another foreign exchange such as the Euro or the British Pound.

Lastly, we’ll likely see more partnerships form between fintech startups and large financial institutions. The symbiotic relationship is exhibited in recent news. One example is Wells Fargo starting a venture fund. Another is Goldman Sachs leading Trulioo’s Series C financing (also funded by Citi, Santander and existing investor AMEX). Traditional banks value startups for their speed and ability to deliver innovative solutions. And startups benefit from the credibility, scale, resources and regulatory compliance offered by established financial firms.

All in all, fintech is growing rapidly, delivering value and increasing inclusion. The results of the survey show that American consumers increasingly recognize and value these fintech innovations. Now, it’s up to today’s entrepreneurs and investors. Carpe diem.