This post was written by Professor Elizabeth Jardine, Metadata Librarian.
If you haven’t heard the term, fintech may sound like the latest robotic shark horror flick. But fintech—a combination of the words financial technology—describes “new tech that seeks to improve and automate the delivery and use of financial services” (Investopedia). The term also encompasses the world of cryptocurrency. Often seen as a disruptor to more traditional banking and brokerage services, fintech uses software, apps, and algorithms to help consumers, small businesses, and large companies manage their finances.
Photo by CafeCredit under CC 2.0
If you’ve ever Venmoed money to a friend to split the restaurant check or contributed to a Kickstarter campaign, you’ve used fintech! The 2019 Global FinTech Adoption Index reports that 64% of digitally active consumers surveyed in 27 markets around the world have adopted two or more fintech services.
More recently, established banks and finance companies have introduced their own fintech, which dilutes the image of fintech as challenging Wall Street’s more established financial firms. For example, after the mobile stock-trading app Robinhood offered commission-free online trading, a number of traditional investment brokerage firms followed suit, such as E*Trade and Charles Schwab.
Fintech has the potential to democratize financial services and promote inclusion with products and services that are easier for consumers to access and use. These companies leverage technology to speed processes, improve convenience, and lower costs.
Many fintech products and services are finding under-served niches in the present financial system, such as the unbanked (people who don’t have a bank account), low- and middle-income customers, and younger people just beginning their financial journeys. Fintech often supports consumers in the important areas of saving and budgeting in ways that regular banks don’t. Their products specialize in a particular service for people who don’t need the wide swath of offerings of brick and mortar banks or the fees that come with those buildings and products. And fintech apps are known for engaging users with slick design and fun elements to help users reach their goals.
Where fintech companies have run into difficulty is that their strength—leveraging technology to reach more people and keep costs low—can also be a weakness. People who are digitally excluded by not having easy access to wifi, such as some low income and rural consumers, may not be able to reliably use fintech.
Customer service may be more difficult for consumers needing platform support if they can’t call or visit a branch office to talk to a person. For example, the inability of investing app Robinhood’s users to reach customer service with their problems revealed the growing pains that fintech startups can face. And Robinhood has admitted as much. Fintech companies can also be challenged by a lack of experience and expertise to handle unexpected growth and activity, such as the problems with the influx of federal stimulus payments on Chime. Finally, some of the investing fintechs have been criticized for their game-like elements, which may encourage some users into inappropriate investments as they get caught up in the fun.
Deciding whether to dive in and use a fintech app or service—or choosing which one if you’ve made the decision to take the plunge—depends on your financial goals and your needs. Do you want to save more money? Do you need help tracking spending across multiple credit and debit accounts? Do you want to dip a toe into the investing waters?
Know how the app or service will connect to your financial accounts and how they will protect your personal information. And know what the options are if you have a problem or need help. Is there a phone number you can call with a person on the other end, or are you limited to Tweeting the help desk?
Know what the fees are—an app may advertise overdraws with no penalty, but there may be a limit to the number of times or amount that you can overdraw without paying a fee. Finally, find reviews from actual users to see what their experiences, both good and bad, have been and if those experience will be relevant to how you’ll use the app or service. Treat your hard-earned money with the care it deserves when researching fintech tools. And congratulations on taking steps to improve your personal finances!
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