Financial technology or commonly known as Fintech has revolutionalized the financial services industry within the last ten years. These new age firms use modern technology to provide financial products and services that are convenient, effective and easy to use than the conventional financial institutions.
Fintechs have been on the rise in the United States and have changed the way people handle their money, invest, and make payments. This paper seeks to assess the effects of fintechs on the American economy regarding financial inclusion, market competition, and consumer behavior.
Enhancing financial inclusion
Bridging the gap
Fintech firms have been significant in increasing the level of financial inclusion in the United States. The conventional banks have high charges and procedures that are not suitable for everyone especially the common man.
Others are the fintechs which have used technology to provide simple and cheaper financial services. Others include; Mobile banking apps which offer banking services that do not require physical branches, thus reaching the unbanked and under-banked populace.
Democratizing financial services
Another major effect of the entry of fintechs is the provision of financial services to the previously unbanked. Walmart has allowed companies like Chime and Varo to come up with no fee banking accounts that are instrumental in ensuring that people are able to access basic products such as accounts.
Also, these platforms provide features that help users create a budget, save money, and build their credit, thus giving people the ability to manage their finances. AI and machine learning are integrated into these apps to offer financial planning and pre-determined savings plans, thus improving the financial management and education among application users.
Empowering small businesses
Fintechs have also affected small businesses which are the pillars of the American economy in a very profound manner. It is one common knowledge that conventional financial institutions are quite rigid in their lending process, which is a major challenge to SMEs.
Kabbage and Square Capital are some of the fintech firms that have come up with different lump sum business financing solutions that depend on real-time data and artificial intelligence.
This innovation enables the small businesses to get the funds they require to support their business in a very fast and convenient way thereby boosting on entrepreneurship and economic development.
Transforming market dynamics
Disrupting traditional banking
This paper also reveals how the emergence of fintechs has challenged the conventional banking systems. Big banks are now challenged by new generation and efficient fintech companies that provide services with speed and simplicity.
This has posed a challenge to the conventional banks and hence has made them come up with better and improved digital services thus making the financial sector more competitive. For instance, most of the banks have embraced the use of mobile banking and other forms of digital payment services in order to meet the standards set by the fintechs.
Expanding investment opportunities
The role of the fintechs in the investment market has brought changes in the sense that investing has been made convenient for the common man. Applications such as Robinhood and Betterment enable the users to trade in the stock, bonds, mutual funds, and other securities at relatively low charges and with no minimum investment amounts.
These platforms also provide information and tools to help the users in making the right investment decisions. Through the reduced entry costs, fintechs have increased the number of people investing in the stock market, hence helped in the democratisation of wealth and boosting the economy.
Enhancing payment systems
Fintechs have also contributed immensely in the improvement of payment technologies as well. Some of the companies that have revolutionized the process of conducting transactions include PayPal, Venmo, and Stripe that have enhanced quick, safer, and convenient ways of making payments.
These innovations have not only enhanced the effectiveness of e-commerce but have also contributed to the emergence of the gig economy. Freelancers and independent contractors can get paid within the shortest time possible thus improving the cash flow and the general financial status of the freelancers.
Shifting consumer behavior
Embracing digital financial management
Fintechs have revolutionized the consumers’ financial management systems in the society. Thanks to the availability of various applications, including budgeting apps, personal finance management tools, and robo-advisors, it is possible to control and develop one’s financial situation effectively.
Others are Mint and YNAB (You Need A Budget) that offer real time information on how the user is spending his/her money and hence can make better decisions on the same. These tools have helped create the culture of financial literacy and responsibility which contributes to the improvement of Americans’ financial management.
Driving consumer expectations
Today’s consumers want their financial providers to deliver speed, customization, and efficiency of services. This shift in expectations has also resulted to higher competition and development within the financial industry since as a way of reaching out to the customers’ needs.
Fintechs have raised the bar for customer interface that includes opening an account within a short time, offering customer support throughout the day, and the ease of integrating with other financial applications.
Promoting financial literacy
Another major consequence of the activities of fintechs is the effect on the levels of financial literacy. Most of these fintech companies provide a learning section, which may include articles, videos, tutorials, and even games to help the user comprehend the various financial terminologies.
Thus, sharing this information, fintechs enable people to manage their financial life better and make the right decisions. This increased financial literacy may result in positive economic consequences for people and assistance in the stability and development of the economy.
Fintechs have affected the American economy in various ways and to a great extent. Through financial inclusion, changing market environment and shifting consumer trends, the fintechs have not only opened up the financial services to the excluded population, but have also disrupted the financial services industry.
This paper has provided a general discussion of fintechs, their development, and impact on the economy, and as fintechs progress and advance, their impact on the economy is set to rise consequently increasing advancements in technology and financial services.
The partnership between traditional financial institutions and fintech companies will be critical in building a more inclusive, efficient, and sustainable financial system in the United States.