According to Blumberg Capital’s annual fintech survey, consumers remain loyal to big banks despite a belief that traditional financial institutions are not evolving fast enough to keep up with rising consumer expectations.
Contrary to the popular belief that big banks and fintech companies are locked in a zero sum battle, American consumers want the best of both.
According to KPMG, U.S. fintech investment saw its second strongest quarter ever for venture capital investment in Q2/17, but despite increased investment pace, consumer fintech adoption in the U.S remains at only 5%.
At a high level, the survey found that public sentiment toward fintech remains positive, but there is much lower adoption by underserved demographic groups. Low-income families and older Americans remain wary of new financial technologies. The survey reveals an opportunity for big banks to leverage existing consumer loyalty to introduce new technologies that benefit more consumers by saving them money, increasing transparency and making transactions easier.
“Previously in the financial industry, capital, reputational trust and regulations were the only barriers to entry,” said David Blumberg, founder and managing partner of Blumberg Capital. “Technology is changing the game. Large financial institutions need to build or buy innovation to maintain and extend their leadership positions. As consumers demand the new technologies, we will see increased adoption or acquisition of fintech by banks to serve consumers. In addition, the fintech revolution is expanding the market, thereby positioning some pure play fintech startups to become large financial institutions of the future.”
Half of the American population prefers to use a traditional financial institution, but also seeks the benefits of new technologies and services. What’s more, more than two-thirds of Americans would trust new payment or investment technologies more readily if offered by their existing bank. The survey also examined the factors that would influence American consumers to consider switching financial institutions or services. Almost one third of respondents claim nothing could influence them to leave their bank, while nearly half said they would consider leaving for lower fees, and almost 40% would leave for lower interest rates or a higher level of security.
Other findings include:
“While the average consumer may hesitate to change from traditional banking to emerging fintech products and services, the potential benefits may become too valuable to ignore,” Blumberg said. “These results indicate that for fintech startups to scale and thrive, they need to provide a product or service that is substantially better, not just incrementally better than traditional banks. At the same time, if banks don’t adapt and adopt new technologies they risk losing the next generation of customers.”
“Another investment thesis that was validated by this survey is the accelerating democratization of financial services to all, including underserved demographic groups,” Blumberg said. “Fintech products and services are providing broadening access to the benefits once reserved for institutions or the wealthy.”
While this is positive, fintech companies need to work to reach these consumers, educate them on the benefits of the new technologies and convert them into long-term users. Findings revealed a gap between low-income and high-income households and younger and older generations in willingness to use new financial technologies. The data shows low-income households and the baby boomer generation are most reticent to adopt new technology.
With major breaches in security at large established financial institutions such as Equifax, in which the personal information of 143 million Americans was exposed through hacking, many wonder if any institutions are trustworthy. According to the survey, Americans are skeptical about the ability of banks and fintech companies to keep information safe, but consider big banks less risky than emerging fintech companies. On the other hand, Americans don’t know much about important emerging technologies such as blockchain and cryptocurrencies. While overall sentiment is positive, there seems to be some confusion around the use, risk and benefit of these new technologies.
Blumberg Capital is an early-stage venture capital firm based in San Francisco.
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