This week, The Economist has been singing the praises of a new wave of start-ups keen to venture into finance. From wealth management to crowd funding, ‘fintech’ firms are springing up fast and taking on financial services piecemeal. Payments app Venmo was used to transfer $1.3 billion in the first quarter of the year, while British-born app TransferWise allows users to bypass the fees usually associated with sending money overseas.
One advantage start-ups have is that they are unburdened by legacy IT systems. Legacy systems can lack the ability to be responsive to customers, and fail to make use of big data, which can provide valuable, cohesive intelligence.
It must be emphasised, however, that the keen (and lean) start-ups are still far from dominating the industry. In fact, traditional banks and insurers also have much to gain from innovation and new developments such as big data and cloud computing.
Banks and insurers can reap significant benefits from small shifts towards customer and data-focussed technology without the need to make radical changes. Even the most antiquated organisation could see huge rewards from small steps towards cloud computing and big data; for example, when it comes to handling information securely, accessing information easily, and improving the ability to scale services.
Insurers in particular will be eager for a slice of the pie. Data-driven lending and risk assessment has clear advantages over decisions based on a single credit score or on meetings between banker and client, states The Economist.
Whether or not start-ups will grow to represent a viable competitor to our established financial service providers, it is clear that, as with other industries, the future is customer-focussed. There is a call for greater transparency as users remain cautious and become increasingly savvy.
The new kids on the block provide an impetus for cutting costs and improving services – which can only be a good thing.