Fintech's Big Fail
Peter Katevatis - Feb 14, 2019
Fintech companies have been growing but still struggle with profitability. They continue to fail their customers in multiple ways.
As a society we love new technologies – it is multifaceted, creates and impact on how we live, and gives us instant gratification. That said, I am also a sponge for new developments in technology and science since I feel it is important to stay current and modern. Financial Technology (the online side of banking and finance) has been around for many years, but the broad range of services has seen massive growth over the past decade.
Unfortunately, many Fintech companies still have some growing up to do. Their business plans identify a large amount of growth in revenue but a lot of red ink on the bottom line. The amount of negative income on the bottom line should leave many potential clients a little nervous. This leads me to believe that one would expect to see a lot of consolidation and money raising in the future - we might even see some heavy fanfare for Fintech IPOs in 2019. The development of Artificial Intelligence and Robotic process automation is constantly evolving, and this will lead to better service offerings and innovations in the sector.
If we look back at the recent surge of Fintech, initially most companies were focussed on Bitcoin and other cryptocurrencies. When gravity finally took hold of crypto prices in 2018 many of these business plans morphed to look more like traditional banks. Traditional banking is all about paying a small amount of interest on client deposits and loaning out money at high(er) interest rates to make the spread. Many of these new Fintech companies have marketed themselves as being very different. How are they different? These new companies, for the most part, have done a wonderful job of creating an enjoyable and ethical work environment with an aim to helping their customers. As customers, this is something we can support!
Where Fintech ends up failing miserably, especially for Millennials, is that it constantly promotes borrowing over investing. If these new Fintech companies truly wanted to help their customers, they would promote savings and growing your net worth instead of adding to the social pressure to spend. Keeping up with the Jones’ is prevalent in all classes of society but we should be trying to help people for the long term, not just pushing them into products that are unsuitable and charge them the highest fees.
Forbes makes a few key points about Fintech and Millennials in their recent article:
- They’re not Protecting User Data
- They don’t help customers set and achieve goals
- Not Focused on Retirement-age needs
- Enable Borrowing Rather Than Investing
- Capitalize on Social Pressures To Spend
- They Fail to Provide Transparent, Unbiased Advice
Understandably, Fintech needs to be profitable to survive. This will create behaviour that matches “big bad banks” leaving the public with the same package, just a different wrapper. Canaccord Genuity Wealth Management is also not immune to these trends but if you can look your advisor in the eye, you can get a much better feel for what truly motivates them.
As we continue to zoom forward into the brave new future of technology, it is important that we “play with a wooden toy” once in a while and determine which banking process is best for us and our family.