As General Manager of TripActions Liquid, Michael is obsessed with creating the world's best corporate card-led expense management solution.
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How impatient are consumers today? Consider this: More than 1 in 5 reported having abandoned a financial transaction or opening an account because it would take too long, according to American Banker.
That frustration has played an enormous role in the development of fintech solutions for payments and banking, like direct deposits and mobile bill pay. But as widespread as those conveniences have become, the fintech revolution is just getting started. Within the next 12 months, an enormous change will supercharge the fintech industry—and create a wealth of opportunities for companies and individuals alike.
Speeding Along The Payments Highway
Analyzing where fintech is headed requires understanding where it’s come from. And 2008 was a pivotal moment. Since that recession, policymakers have paid close attention to the traditional financial ecosystem in an effort to make that community safer. Regulators pumped the banks full of capital and leaned heavily into compliance. It worked—to a degree.
That’s because compliance came with a trade-off: the sole use of legacy systems, which simply couldn’t satisfy customers and businesses, hungry for convenience and immediacy.
Enter fintech.
While PayPal had been streamlining the movement of money since 1998, the years following 2008 saw the birth of giants-to-be, like Venmo, Cash App and Zelle. New services like buy now, pay later (BNPL) options and instant reimbursements took off. Not everyone was on board: Even today, banks and traditional payments networks like Visa and Mastercard continue to garner the most trust from consumers. But fintech products like Apple Pay are helping to narrow that gap each year.
As solutions like these proliferated, usage skyrocketed. And in 2021, fintech reached “mass adoption,” according to a survey by The Harris Poll and financial services behemoth Plaid. It happened almost overnight: In 2020, 58% of U.S. consumers surveyed used technology to manage their finances. But one year later, that number had jumped to a staggering 88%. The “why” was obvious: Fintech, said survey respondents, saved them time and money, helped them make smarter financial decisions, and reduced financial stress.
Fintech To Go
The industry is just getting warmed up. Consumers are increasingly leaving their physical wallets at home, opting to shop with their phones instead. In 2022, 30% of consumers said they intend to use three or more digital wallets—up from 18% in 2021, according to McKinsey.
The increase isn’t born only of convenience. Digital wallets and virtual cards also offer heightened security against fraudsters, as virtual credit card numbers can’t be traced without access to a cardholder’s identity or computer system.
Mobile fintech technology is also changing how payments connect globally. Fintechs specializing in cross-border transactions are expanding the progress made by domestic giants. Ripple, for example, uses blockchain technology to enable customers to move money across borders and currencies with nearly instant settlement. The era of waiting days for an overseas wire transfer seems downright quaint.
Many startups, of course, have taken note of all these developments. But so has one of the world’s largest financial institutions—and it’s going to take fintech to a whole new level.
The Bold New World Ahead
Perhaps no year will be as big for fintech as 2023. That’s when the Federal Reserve is scheduled to launch its instant payment service, FedNow—the government’s first attempt at real-time payments (RTP). It will enable individuals and businesses to send instant payments through the Fed’s depository institutions and give smaller banks and credit unions a fighting chance in the payments arena.
FedNow is a groundbreaking development—and not just because it will be America’s first new payment rail since the Automated Clearing House (ACH) was launched in the 1970s. It could usher in a massive shift for future banking customers, which have overwhelmingly indicated—not surprisingly—that access to faster payments would factor into any decision to switch banks.
What will it mean? From airline tickets to court fees, the FedNow payment highway grants banks the potential to stay up to speed with current fintech offerings. And the White House says it will encourage all government agencies to use instant payment services for their transactions, like the distribution of disaster funds or other government-to-consumer payments. Just think how many people could benefit from a more streamlined distribution of government benefits and greater access to lending programs.
While FedNow will be Washington’s first foray into fintech, it won’t be the last. In September, the White House revealed that two government branches are set to kick-start research on the next generation of cryptocurrency.
Government involvement in the growing fintech space is a massive opportunity for industry growth and collaboration. The market is still super-ripe for companies and institutions to compete—or partner—with Uncle Sam and/or any of the big fintechs. And no singular use case in the fintech industry has surpassed 70% penetration, according to Plaid.
From splitting restaurant bills to paying rent, fintech has pushed the legacy payment process to the verge of obsolescence. And as it continues to evolve, it may even turn our impatience with financial transactions into a relic as well.
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