Fintechs have captured a considerable market share of the financial services industry in the past decade and their growth momentum continues. They bring various benefits to consumers, but traditional financial institutions, like banks, also have their strengths. Our survey of 900 individuals in 14 emerging markets helps us clearly demarcate the strengths and weaknesses of both business models, as well as informal channels.
For consumers, fintechs win on most of the assessed factors; key strengths include convenience, innovation, product development and pricing. On the other hand, traditional institutions retain the edge in terms of brand recognition and security . Informal channels generally perform poorly, with their best perceived attribute being their ability to reach the poorest segments of society.
The core strengths of fintechs
Our survey indicates that consumers prefer fintechs over traditional financial institutions and informal channels across a variety of factors. These include:
Convenience: Fintechs make consumers lives easy by providing them with various financial products on their hand-held devices, without the need to visit branches. Consider Paytm, for example – through one super app, the company provides payments, lending, insurance, investments, e-commerce and various other products to its customers.
New product development: Fintechs are actively developing new products to meet the needs of consumers. Buy Now Pay Later (BNPL) is a recent example of fintech product development which has helped consumers greatly in managing their finances and spending.
Product pricing: Financial sector consumers are very price-sensitive, according to our survey. Fintechs often offer products at a cheaper prices compared to traditional peers. For example, Zerodha and Angel One – India's leading online stock trading platforms – offer low-cost stock trading, capturing huge market share.
Innovative solutions is a key fintech success factor. Innovation helps fintechs to become more relevant to their existing customers and/or reach new ones. Fintechs are innovating in the areas of blockchain, artificial intelligence, cloud technology etc.
The core strengths of traditional financial institutions
Consumers are increasingly inclined towards fintechs in many areas, but traditional financial institutions, like banks, hold their own advantages which include:
Brand recognition: Banks are typically established institutions with whom consumers have had time to develop a certain level of trust. In contrast, most fintechs are just a few years old. That said, the gap between both types of company on this measure could narrow as certain fintechs gain scale and become better funded.
Security: As the usage of digital financial services is picking up, so is the risk of cybercrime. Consumers who are concerned about the security of their funds or personal information are more likely to choose traditional financial institutions and brick and mortar channels.