Today changes and improvements in any industry including the financial services happen faster than ever. At every run, there emerge digital products or solutions that revolutionize the traditional state of things. As an example, the rental market has experienced a significant transformation with the rise of Airbnb. Eventually, Airbnb triggered the emergence of new business models in other industries. As customers get used to new and better digital products and services, companies try hard to satisfy them.
New business models in fintech
Fintech can boast a gargantuan evolution in the recent years. The industry faces the uprise of new business models such as crowdfunding, peer-to-peer (P2P) lending, digital payment, and wealth management.
Until recently, we had to go cap in hand to banks or some financial establishments to get a microloan for personal needs or business development. In most cases, the result was rather predictable – you get rejected if strict qualification requirements are not met. Fintech’s trend known as P2P lending aims at joining two parties – borrower and lender – in one place.
Now, businesses or individuals can either borrow or lend funds within a lending platform. This business model is characterized by numerous benefits including lower interest rates, simplified qualification procedure, direct communication between parties, etc. The task of fintech lending ventures is not to act like a bank but to let people provide or get loans with ease.
Payments are probably the most widespread and popular transaction so far. It is no surprise that this business model was the fastest adopted in fintech. Today, you can pay for almost anything using your smartphone. Moreover, digital payment startups usually provide the customers with new options like real-time payments, remittance, currency exchange, etc. All these transactions are characterized by instant performance, low charges, and convenient operation. The business model is amplifying at lightning speed that attracts numerous fintech software companies.
In short, crowdfunding business model allows you to raise money for the implementation of your idea or project. There are many types of crowdfunding including those based on rewards, equity, donation, and debt. Some of these types don’t require you to pay interest on the financial support you receive. Crowdfunding usually includes three parties – project initiator (needs money), idea supporter (can give money) and moderating organization (brings them both together). It is not necessary to focus only on a business idea or invention to benefit from crowdfunding. A lot of social and charitable projects opt for this way of financial support as well.
Wealth Management is a fintech business model that is furiously gaining steam. The idea is to provide customers with a digital algorithm also known as robo-advisor to assist in wealth appreciation. Real-life advisors lose to their digital analogs in many ways. And the decisive factor is cost reduction. For a rather low cost, you will get unbiased advice supported by a profound analysis of market environment and investment options. Your finances will be in the machine’s hands, which stipulates the lack of human touch.
What is driving the emergence of these models and innovation in fintech?
The mentioned business models do not come from obscurity. They are the result of certain customer needs and market changes that are the drivers of the innovative development of fintech. As a result, we can enjoy great products and state-of-the-art solutions to make our life more convenient and flourishing. Here are some representatives of this driving force.
Until recently, fintech has deemed a threat to the banking industry, but the situation has drastically changed. Now, financial technologies act as an ally that occupies the bank forsaken niches and services. And the major driver of such collaboration is open banking. This term denotes the use of an application programming interface (API) within a network of data provided by a financial service provider. With open banking, industry increases its adoption of APIs across versatile services such as payments, financial management, customer service, etc. As for benefits, there is a plethora of them including facilitation of remittance, simplified servicing, and other functionalities to improve customer banking experience.
The growth of passive investing
Individuals and businesses with excess equity are interested in making money work for them. On that account, passive investment is a great opportunity to boost your own fortune. Fintech investment solutions like robo-advisors and wealth management apps allow users to leverage their money in the most efficient way. Their recommendations are free of any bias or human error and rely on pure analytics. Moreover, you do not have to possess scads of money to become an investor since the minimum amount is affordable for people at large.
Rise of millennials
Millennials are namely the generation born at the end of the previous century (the 1980s to the mid-1990s or early 2000s). They are deemed another driver of fintech development that pushes to improve digital experience due to their increased demands. However, it is not about laziness or idling but a desire to get convenient and comfortable services and products. Moreover, millennials appreciate an individual approach to customers that is adherent to fintech ventures at most.
The volume of information in the global digital environment increases every second. The information requires new processing methods that are a motivator for companies to explore them. Old business models are gradually fading away and those companies that have the guts to transform them are rewarded with the competitive edge.
The golden rule of any service provider is to keep ahead of the trends to make sure your clientage is satisfied. Even an impeccable reputation won’t be a safety belt if competitors offer a progressive solution like mobile banking, AI-driven virtual assistant, or a powerful wealth management app.
Today, the best way to stay afloat is to collaborate rather than contend. Financial technologies do not jeopardize traditional financial services. On the contrary, they foster growth and disappearance of the outdated business models. For example, the collaboration between banks and fintech ventures has led to the improvement of customer banking experience, as well as reduction of operational charges.
A technological breakthrough is not over. Every day, we get informed about new trends and solutions such as AI-driven chatbots, robotic process automation, etc. All these have a tremendous potential for agility, efficiency, and accuracy in financial services.