How fintech began
Though the concept of financial technology or ‘fintech’ has been around since the 1950’s, over the past decade, innovations in technology have drastically changed how financial services are delivered, and in many ways have made consumers’ lives more convenient. Modern ‘fintech’ has taken the principles of large-scale data analysis and automated decisioning from the tech industry and applied it to the financial system.
This story arc began with the roboadvisor, that redefined investing by evolving it from a world where you found and picked your own stocks into a world where you told a computer your risk preferences and it made decisions for you. Next, fintech lenders reimagined the personal lending experience, taking what used to be pages upon pages of forms and turning those into a couple of screens in an app. Later still, we saw neo-insurance companies take a new consumer-centric view to insurance, redesigning the application and engagement process to make managing insurance a breeze. Today, virtually anyone can set up a custom investment portfolio, apply for a personal loan, or insure their belongings with the tap of a button on their smartphone.
So why hasn’t banking followed suit?
Today, despite advancements in other financial industries, banking remains at its core a simple manual ledger of your financial life. You can check your balance, make some transactions, and that’s about it. Why can’t it be more?
Historically, although big banks have attempted to provide personalized services to their customers on countless occasions, they still struggle to do so effectively. Big banks sit on a wealth of customer data, but with siloed data storage and a lack of proper technology, it’s a battle to put that data to work in the right ways. Their underlying technical architecture makes the kind of data analysis that made fintechs successful very difficult and very expensive.
It’s also not as simple as just unifying data silos or upgrading technology. Banks run on core systems that are in many cases decades old, making it not only very costly, but also risky and time-consuming to overhaul these legacy systems. Moving a big bank’s technology capabilities is a bit like maneuvering a big cruise ship – it takes a really long time and costs a lot of money (and at the end of the day, it doesn’t really move all that much).
On the flip side, fintechs can move in a much more agile fashion (akin to a speedboat) as they don’t have the same legacy infrastructure to maintain and are making use of platforms that have modernized the underlying “nuts and bolts” of banking.
Luckily for consumers today, there’s a way for them to get the customer-centric experience they want. With their favorite fintechs leveraging “cloud banking” platforms, they can experience banking in a completely new way. Akin to how Amazon Web Services (AWS) “democratized” the use of cloud services and made server space accessible to more than just large enterprises, platforms available today have made “cloud banking” accessible in a way never seen before.
Rather than having to invest in developing, maintaining and evolving complex banking infrastructure, fintechs can leverage such platforms to create customer-friendly and personalized applications quickly and efficiently, focusing on building a killer experience instead of rebuilding the regulatory wheel.
This means fintechs can (compliantly) roll out innovative new features in months instead of years and can afford to spend the budget that would usually be reserved for infrastructure maintenance on extending new benefits to the user instead.
What’s possible with this new technology?
Truly custom experiences that are designed for YOUR financial life and not that of a generic target customer. People are unique – so are their financial situations. Imagine an app that understands your financial life and eliminates the time that you would otherwise spend managing it. Whether you make ten thousand or ten million dollars, every person has to think about how they’re going to manage their finances.
What might that look like?
Say you realize you’re spending too much at restaurants, so you download an app that helps you create a suggested cap on money spent out to eat, along with a corresponding savings goal.
You would agree to the amounts, then the app would take care of everything else – denying your spending at restaurants once you hit the agreed upon ceiling, aggregating those savings, helping you understand your financial picture, etc. This takes currently available apps a step further – instead of simply knowing you’ve spent too much, you receive active guidance in managing your finances and meeting your specific goals. Just as you can have an app automate your investment portfolio, you will soon be able to have an app automate your finances for you so you can focus on living your life.
Experiences like this – as well as countless others – are quickly becoming possible as innovative companies like Acorns, MoneyLion, Qapital, and others leverage cloud banking platforms to build truly personalized digital financial services.
Because the tools to build these types of apps have not been available until today, it will be interesting to see how companies use this new technology to build experiences that are tailored to both understanding but also actively helping consumers manage their finances.
We expect that this quantum leap in cloud banking technology will catalyze a whole new generation of banking (much like the invention of cloud storage ushered in a new era for the internet). The question is: who will lead that generation and what will that generation look like? Only time will tell.
Thankfully, creating this experience is now easier than it has ever been. That’s why 2019 will be the year of the consumer, as we see the rise of digital financial services that are tailored to not only understanding, but actively helping consumers manage their finances.
We’ve already seen the initial impact of this with apps like Acorns, MoneyLion, Qapital, but with these kinds of platforms now available as a tool in companies’ toolkits, consumers should expect a rebirth of banking, with these innovative companies holding the torch as they leverage Banking as a Service (BaaS) platforms to build the next generation of financial services.