As dissatisfaction with traditional banking rises – according to a recent study by Edelman, financial services are the least trusted major industry in the world – more and more customers are turning to financial technology (fintech) to meet their needs.
Natalie Cartwright, co-founder and chief operating officer of Finn.ai, a virtual financial assistant powered by artificial intelligence, said at a recent Business in Vancouver Business Excellence Series event that it’s clear the public has been losing faith in the mainstream banking system.
“I trust my bank to move money for me and to be accurate with my credit card,” Cartwright said at the event, held September 12 at the Shangri-La Hotel in Vancouver. “I don’t trust my bank to write a good user experience, and I don’t trust my bank to be concerned with my financial well-being. And I don’t trust my bank to have a reasonable cost structure for all of this.”
The rise of fintech has coincided with this distrust, and investors are starting to take notice. According to a study from the World Economic Forum, investment in fintech has shot up, rising from $1.8 billion in 2010 to $19 billion in 2015. The result is companies like Progressa, an alternative loan agency that was founded in Vancouver and now has an office in Toronto. Progressa CEO and panellist Ali Pourdad said the company went from two employees to 110 in four and a half years, based on delivering banking services differently. He said the company’s bottom line is strongly guided by ethics.
“Our company has developed a proprietary way to look beyond the traditional credit score,” he said. “We look at people’s cash flow, their capabilities, their intentions, their social aspects. What are they really trying to do here? Are they trying to do the right thing? And that’s giving people a chance and opening up access to credit where the banks won’t.”
This new style of banking has forced the hand of established banks. Doug Macdonald, regional financial services leader for Vancouver-based chartered accountancy and business advisory firm MNP LLP, said his company now faces the task of adapting to new ideas coming out of the fintech world.
Macdonald said traditional banks are holding meetings with young companies that have an entirely different set of values – right down to office attire.
“What’s really changed for us over the last three or four years has been an increasing number of questions and advice sought by our larger companies around how … [to] interact with these fintech companies,” he said. “Because a lot of the times, a bank or a credit union will say they want to [become more] entrepreneurial and faster, and a bunch of people show up in their office wearing jeans, and they can get scared.”
Panellists at the BIV event said the driving force behind the increased role of fintech could be directly related to technological advancement, the economic downturn of 2007-08 and the rise of the millennial. Members of the youthful demographic, loosely comprising people born between 1980 and 2000, are far more likely to leave their bank if it does not meet their needs than are people belonging to any other demographic, according to a study by data analytics firm FICO. The same study also found that millennials want banking that is cheaper, faster and easier, which means mobile and online. Panellist Kelly Samuels, a partner with Edwards, Kenny & Bray LLP, said fintech is listening to these demands and subsequently building products and services around these requests.
“What it’s really shown for the end consumer are reduced costs and more convenience and more access,” she added. “And particularly with things like money transfer services, you can go across international borders now, in seconds rather than days, and for a substantially reduced cost. So that really benefits consumers who need to send money home or move money around.”