How Technology is Shaping Consumer Finance

Sep 23, 2021
4 min read

More investors are placing their bets on the financial technology industry since the pandemic accelerated the shift to digital services. KMPG's 'Pulse of Fintech Report' reveals that global investment in financial technology reached an all-time record high of $98 billion in the first quarter of 2021. Investors believe that the digital transformations within the financial services industry are here to stay, and thanks to their capital investments, fintech companies are positioned to create better innovations faster.

All of this comes at the benefit of consumers, who can now enjoy streamlined financial services through their smartphones. Fintech improves the way consumers interact with money — from mobile payments that provide convenient cashless transactions to artificial intelligence solutions that decrease the risk of fraud.

Below we've listed few ways through which technology is improving consumer finance.

· Automated Customer Support

Even before the pandemic impacted people visiting physical banks, chatbots in banking were starting to gather steam. For financial institutions, having a single, dedicated chatbot solution that answers many customers' queries can significantly lower costs and increase efficiency. In addition, customers can enjoy real-time answers to their concerns, providing quicker and more positive customer service experiences.

One example is Capital One's chatbot solution Eno, a text-based banking assistant that can be contacted via bank's website, mobile app, and text messages. Eno was trained to understand how customers might ask financial questions and respond with natural speech, imitating a human. Eno can send customers alerts about transactions, frauds and notify them about any relevant subscriptions on top of responding to customer queries.

· Digital-Only Banks

Though the lack of a physical branch might be problematic for some users, tech-savvy customers could find convenience in online banks.

Online-only banks can cut down on the cost of managing physical branches, enabling them to offer their customers high interest rates on their deposits and lower fees. For example, the online bank Marcus by Goldman and Sachs offers savings accounts an annual percentage yield of 0.5%, four times higher than the national average. Certificates of deposit even offer APYs of 0.55% and above for fixed terms that exceed 12 months. Though digital-only banks lack a personal touch, consumers do have access to much better offers.

· Mobile Payments

When physical cash exchanges diminished during the pandemic, the demand for contactless payment methods grew. Mobile payment apps such as Venmo, Google Pay, Apple Pay, and Paypal enjoyed a surge in popularity last year. These apps eliminate the need for physical cash by allowing users to make transactions through their mobile devices.

These digital payment methods now account for $1 trillion worth of the world's revenue. Juniper Research predicts that this number will increase to $1.5 trillion within the next four years. Apple Pay currently represents about 5% of card transactions worldwide and is expected to cover 10% of all global card transactions by 2025.

· Alternate Payment Methods

Some mobile payment apps have even begun accepting alternate methods of payment. Popular digital payment platform PayPal began rolling out cryptocurrency payment services to US customers in October 2020 and has recently extended its cryptocurrency services to users in the UK. With the cryptocurrency feature, customers can buy or sell virtual assets such as Bitcoin, Ethereum, and Litecoin. PayPal also gives users educational resources and tools for tracking real-time cryptocurrency price changes.

Given the relative newness of cryptocurrencies, the general public's unfamiliarity creates a huge barrier to widespread adoption. Having easy-to-understand educational features on a platform as established as PayPal makes it easier for beginners to enter the cryptocurrency market.

· Credit Accessibility

Technology is also making credit more accessible to individuals with complicated credit histories, such as young consumers or those who are considered 'credit invisible'. Petal 1 – one of Petal's credit cards uses a more accurate cash scoring solution to effectively analyze banking and credit history to assess a client's creditworthiness.

Additionally, the card comes with a mobile app designed to help clients improve their credit scores. Its features include a credit score tracker, budgeting tools, subscription management, and auto payment options. This way, customers can manage their spending while staying on top of their monthly payments, thus putting themselves on the path to financial freedom.

· Consumer Lending

Even loans are now more accessible through fintech solutions. Online lending resource Biz2Credit uses AI to evaluate the creditworthiness of small businesses. Their financial score simulator tool, BizAnalyzer, studies revenue, cash flow, and credit scores to generate a clear image of a company's financial health. It then uses these metrics to generate a score from 1 to 100, which can be used to determine the company's likelihood of getting business loans approved compared to industry competitors.

· Wealth Management

Developers are also looking for ways to digitize wealth management. According to Barka Sheth's piece on Wealthtech, modern advisory firms are using AI and machine learning to analyze client data and generate actionable investment recommendations. Rather than employing analysts, who may lag behind when it comes to market analysis, clients can seek real-time market advice from quick-thinking Robo Analysts.

For example, digital wealth manager Scalable Capital lets customers buy cryptocurrencies, ETFs, and stocks through a Robo Advisor. Removing the "middleman" allows clients to make transactions faster while cutting down the cost of brokerage fees.

· Fraud Prevention

With cyberattacks increasing as financial institutions rapidly shift toward digital services, many companies prioritize cybersecurity.

In 2018, Citi Treasury and Trade Solutions partnered with fintech startup Feedzai to improve real-time risk management in their banking services. Feedzai's solutions use machine learning technology to monitor changes in client behaviour. Feedzai can detect anomalies in client transactions and alert the company before payments are processed by analyzing client patterns. These processes rely mostly on technology, so they do not slow down customer transactions allowing clients to make payments quickly, efficiently, and securely.

Ending Note

While the shift toward digital solutions was accelerated by the temporary "new normal," the innovations created to improve financial services are here to stay. Thankfully, these industry changes have created a consumer-first landscape that makes financial services safer, faster, and easier to use.