This blog, provided by Innovate Finance, takes a step back by providing us with an overview of the traditional financial services sector to determine what exactly has prompted its disruption alongside the rise of FinTech.
Below are a few key factors which have driven the unprecedented rise in FinTech:
1. Lack of trust in and dissatisfaction with traditional financial services
Consumer sentiment plummeted globally, post-crisis and has continued to remain low. This has created an environment where consumers are more open to adopting new business models and products from new providers.
2. Changing customer expectations
Customers now expect banking to be as user-friendly as shopping or socialising have become. Next-generation banking is being built around interactive, mobile friendly interfaces which emphasise a positive customer experience.
3. Digital connectivity
Smartphone and internet penetration have revolutionised connectivity, allowing consumers and businesses to connect in ways previously unimagined. This has opened up an enormous possibility in the financial sector.
4. Open source software and cloud computing
The rise of open source software and cloud computing has made building a new startup considerably cheaper and easier, lowering barriers for smaller disruptors.
5. The rise of the marketplace model
Companies like Uber and Airbnb are disrupting other industries and setting new standards for trust and transparency, efficiency and connectivity between buyers and sellers. Younger generations, in particular, are more open to doing business with and being influenced by peers, friends and like-minded people than by institutions. This trend has spilled over into the financial services sector.
6. Legacy IT systems
Traditional financial institutions are burdened by legacy IT systems, which prevent the banking giants from adapting to meet the new demands of customers and regulators. Smaller FinTech players have an advantage in this respect. Not only can they provide better digital services, but lower cost of infrastructure also means that very often they can offer consumers a cheaper service.
7. Regulatory changes
Regulatory changes introduced in recent years, has prompted financial service providers to monitor their activities more stringently. Many smaller firms are not subject to the same costly regulatory constraints and are thereby are able to provide more competitive rates. New regulatory constraints have also created demand for a range of new and innovative solutions, increasingly known as ‘RegTech’.
Have another key factor you’d like to add? Let us know in comments or tweet@InnFin. Interested in taking the‘FinTech 101’ course or want to find out more about it? Get in touch via firstname.lastname@example.org.