Richard Litchfield, Head of Operations at P2P lending innovators Lending Works, tells us how financial technology is shaping the future of the services industry and the changes it has made so far.
Financial technology (FinTech) is the creation of apps, programs, or other innovations that support new — or improve existing — financial services. It encourages developers, banks, and customers to think differently about money and how it’s managed, shaking up the traditional model of the industry in the process.
One of the original FinTech revolutions was the introduction of core banking systems in the 1970s. Core banking took away the need for individual branches to process their own transactions manually and therefore reduced costs, meaning banks could offer more services to customers with less wealth. These customers could then collect interest on their savings, start businesses, make bigger purchases, and generally increase their standards of living.
Modern FinTech is doing the same amount of good for financial inclusion. Consumers are being given access to financial products and services that are useful, affordable, responsible, and sustainable, and are fixing problems that are present in the way we traditionally manage money.
Below are some of the ways FinTech is revolutionising the financial industry and exactly what that means for the average consumer.
Perhaps the most obvious benefit of FinTech is the way we use it to make payments. Unwelcome add-ons like transfer fees and foreign transaction charges are now less common as the technology used to make those processes happen is becoming more efficient, which helps to make the overall cost of payments cheaper.
When it comes to online shopping, there are plenty of new payment options that are quicker and more secure than traditional methods. Contactless, PayPal, Apple, Android pay, and even in-app purchasing have streamlined the shopping experience, so it’s easier to put money back into the economy. It’s also been made simpler for customers to collect payments through re-sale apps, auction sites, and social media marketplaces, meaning that even people who aren’t very technologically savvy can make money online.
The next step for payment technology is real-time payments that will take pending transactions out of the equation. Instant payments allow consumers to avoid incurring overdraft and transaction fees if they lose track of their spending, and this allows them to make the most of the money they have.
P2P lending and investing
Also known as crowdlending, peer-to-peer (P2P) lending allows small businesses and entrepreneurs to secure funding. The money they receive is loaned by individuals with savings who are looking to invest their money and see a return.
As the loans are facilitated by P2P platforms and not banks, they have no minimum loan amount and can offer better interest rates for both parties. They are also quicker and more efficient than bank loans, as the automatic processors eliminate the need for a middle-man, and lenders can customise how long they want to lend for. Plus, under the personal savings allowance (gov.uk), lenders can earn up to £1,000 in interest tax-free.
The success of P2P lending is owed in part to the changing attitudes towards traditional lending and saving through banks; as a more ‘for the people’ option, P2P lending puts consumers back in control and provides options to savers enduring poor returns.
Artificial intelligence (AI) FinTech such as chatbots and robo-advisors could be a more affordable way for consumers to get expert, to-the-minute money advice without spending a lot of money on a human advisor or accountant. Chatbots are operating in customer service roles across many industries, but the ultimate goal of a FinTech chatbot is to provide solutions that are tailored to each individual customer’s money problems.
At present, most chatbots can offer only basic banking advice. They are intended to be a quicker, less irritating system for getting in touch with your bank than contacting a support centre over the phone, and the conversations take place over text and instant messaging widgets.
However, financial service providers are looking into chatbots that can deliver personalised portfolios of services for customers at a low cost, across devices and platforms. The process would be automatic, saving time, but would still deliver the level of customer service that consumers expect. The experience would be like having a free, virtual financial assistant in your pocket.
FinTech is not only changing the way we spend money, but it’s also affecting the way we think about our finances. These are just some of the ways FinTech is revolutionising traditional banking methods, and what that means for our financial futures.