Nimble fintech companies are posing a real threat to the traditional banking sector. Despite some US-based fintech investment figures that suggest a cooling off in the sector in 2015 – 16, the industry has been buoyed by large innovators, young people and VC funding.
Innovators
Social networking platforms are entering the market. These innovators introduced us to new ways to communicate, and now they are eyeing the fintech market. Facebook last year launched its P2P payments using messenger, allowing users to transfer payments free of charge.
The release of a whitepaper outlining Facebook’s intentions for its cryptocurrency, Libra, has also caused a stir. Whether it will fulfill the expectations that the company and its investors have remains to be seen.
Social media platforms entering the fintech marketplace poses serious threats. They already have the data and means to personalise users’ experiences and they have the active user numbers to draw upon for developing innovative payments systems that answer the needs of their customers, such as omnichannel access and low fees.
Young People
Millenials are now dominating the economy, spending about US$600 billion annually in the US. They have homes and kids and jobs. This generation more than any other is less likely to trust banks. They prefer alternative banking options, such as prepaid cards and money transfer agents.
This generation of digital pioneers have used fintech more than any other segment of the population and they are confident using new innovations. For traditional banks to remain relevant to young people, they need to offer more fintech solutions or face irrelevance.
Venture Capital Funding
While 2015 is still the best year so far for US-based fintech funding, the industry is still thriving. VC funding in fintech last year reached US$21.6 billion in the US, putting fintech companies in a position to innovate and advertise.
People are increasingly turning to fintech solutions and as more young people enter the workforce and have a disposable income, the segment will certainly grow to meet the needs of a new generation of young people who feel more comfortable trusting tech than they do banks.
Some of the larger banking institutions are taking fintech seriously and implementing ways to provide a seamless customer experience. The competition between traditional banking and fintech is driving changes to technology, security, regulations and customer experience.
Overall, it isn’t any one factor that is pushing the development of fintech, it is a customer-driven demand for better access, better security and lower costs that is improving the ecosystem.

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