It’s safe to say we’re in a fintech revolution and the future remains positive — from an investment and demand perspective. The adoption among consumers is rapid and climbing, and large financial institutions are increasingly turning to fintech innovation as a way to stay current with the ever-evolving needs and expectations of their customers.
Fintechs, those operating in the financial technology sector, are developing innovative technology solutions ranging from payments to lending and robo-advisory to trade data management — and consumers and businesses alike are taking note. Bank spending on new technologies in North America alone is anticipated to increase to $19.9 billion this year. And just in Q3 of 2016, fintech funding reached $2.9 billion, according to a report published by KPMG and CB Insights.
What’s driving the massive growth and adoption of these fintechs? There are two primary things at the core of the fintech success: customer experience and a strategic view of APIs.
APIs as a strategy
Businesses today are challenged by evolving and adapting to a new customer-centric, hyper-connected environment. This has given way to the API revolution — it’s how businesses are scaling, innovating and disrupting legacy industries. APIs, application programming interfaces, enable digital transformation and rapidly deliver convenience to customers. As such, they’ve become integral to adapting to the expectations of customers and other stakeholders.
In financial services specifically, APIs are completely transforming the industry as we know it and making the previously unthinkable, possible.
“Companies that focus on APIs are allowing different players in the fintech ecosystem to collaborate and work together,” said Joe Carella, assistant dean, Eller Executive Education, University of Arizona. “It’s allowing for greater integration of the services that different organizations can offer and it’s allowed them to focus on making the consumer experience more simple and convenient.”
But APIs cannot be thought of simply as tactics or one tool in the overall innovation toolbox — they must be part of the business strategy, and fintechs who’ve taken this approach are the ones seeing the greatest success and making the biggest difference in the industry. These emerging fintechs are successfully leveraging APIs to deliver new customer experiences, value and revenue. On the commercial side of the equation, they’re using APIs to streamline or optimize processes and relationships with partners. And in both scenarios, successful fintechs are devising performance indicators and goals measuring first and foremost how they are improving the customer experience.
Adapting to the new customer journey
Indeed the rapid adoption of fintech has been led by the convenience to customers. These new technologies taking over the financial services world are simply more in tune to the needs of today’s consumer. According to a study by EY, 43.4 percent of respondents said they use fintech products because of ease of use.
The most notable fintechs — Dwolla, Stripe, SoFI, Mint, to name a few — have achieved success because they’re leveraging technology to adapt to the way digitally savvy generations want to do things. They’re making legacy approaches and systems obsolete by simplifying the way people pay for things, lend and borrow money, and manage their finances. And this is just on the consumer side.
In the commercial world, fintechs are enabling other financial services companies and other organizations to expand their service offerings. Bookkeeping systems can now offer consumer and business lending, and countless business apps now enable their customers to pay for or access financial information with fingerprint identification.
“Legacy banks are focused on managing risk where fintechs are focused on managing the customer experience,” Carella said.
As fintechs continue their upward trajectory, IT transformation will prove essential for traditional, legacy organizations to stay afloat, and that transformation will have to be built on a foundation of an understanding of the ever-evolving customer need and their expectations.
Header image of business cloud courtesy of iStock Photo.