Fintechs extend reach, but do customers trust them?

Fintech companies – which US consulting giant McKinsey defines simply as “technology firms that focus on financial products and services” – are now a huge part of the global financial services industry.

The likes of Ant Financial in China, American insurance start-up Oscar and the UK’s Atom Bank are all posing big challenges to established players in their respective sectors. KPMG placed all three in the top ten of its Fintech 100 list for 2016.

One of the most notable recent trends in the fintech space is the expansion in the range of products and services on offer.

McKinsey noted that businesses are now looking beyond payments, lending and money transfers, and moving into areas such as personal financial management, crowdfunding and blockchain.

Separate research by Capgemini and LinkedIn revealed that half of banking customers around the world now use products or services from at least one fintech firm. Emerging markets lead the way, with more than three-quarters (75 per cent) of customers in China and India using these providers.

Despite all this growth and potential, there are some areas where traditional financial institutions (FIs) still hold an advantage over fintechs. Less than a quarter (24 per cent) of customers said they trusted their fintech provider, while 37 per cent trusted established FIs.

Fintechs are also trailing incumbents in areas such as fraud protection, quality of service and transparency.

Penry Price, vice-president, marketing solutions at LinkedIn, said: “Rising customer expectations for more personalized and advanced digital experiences, advancements in technology, greater access to venture capital, and lower barriers to entry have created fertile ground for growing fintechs.

“Fintechs are largely gaining momentum by meeting needs traditional players have yet to address, but many fintechs lack the transparency required to earn the trust of their consumer audiences to capitalize on these opportunities.”

One thing is for sure: the growth of fintechs is a trend that established FIs cannot afford to ignore. Just how big these businesses can become, and what sort of influence they will have on how the financial services industry looks a decade from now, remains to be seen.

Written by Jack Dougal

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