The world of finance is a very diverse and constantly changing environment that combines tradition and innovation. On the one hand, we have conventional financial mediums like fiat money, precious metals, and stocks that have been well tested during recent centuries (some of them even longer).
This creates a stable financial platform for the customers - it’s pretty trustworthy on a long-term basis.
On the other hand, there are many entities that strive towards innovating their products and services. This process even has its own name - Fintech. The development of Fintech has been influenced by many things, be it digitization, the internet, smartphones, etc.
And every one of those influences has improved the industry on a various scale - some incrementally, some drastically. Ranging from Forex trading brokers and institutions all the way to the online department stores, these innovative means of exchange are having a significant effect that’s only going to increase over time.
However, there are still some doubts and misconceptions among consumers. Be it security fears or the predictions of the end to the banking, these misconceptions make quite a lot of noise and need to be addressed right away. So, without further ado, here are the four most popular misconceptions about Fintech and how they’re missing the point.
1. There’s no difference between Fintechs
The Fintech industry, as mentioned above, is a very diverse place with different providers and their services/products. However, there’s a common misconception that every single Fintech company is the same with no significant differences between them.
People think that Fintech companies and groups fall into one single category of financial service providers that basically provides innovative solutions to payment methods. And while this is certainly true for many Fintechs, there’s so much more to them than that.
One doesn't need to go as far as to inspect the whole Fintech industry to find out that there are more distinctive and niche-occupying companies than similar ones. In fact, the whole industry is a mosaic of different service providers, be it money transferring, credit accounts, or fund management. And many of them offer innovative technologies such as AI which then are used by many industries, including financial, entertainment, and even political.
So, the bottom line is: not all Fintechs are created equal. And instead of contributing to this misconception, Fintech companies should be focused on raising awareness about their distinctive services and products among customers. This will allow people to leverage specific offerings of a certain Fintech that’s more suitable to their requirements.
2. Fintechs are cheaper than conventional financial providers
Another pretty big misconception among consumers is that since online services are cheaper - although, it’s not clear to me how they deduce that, Fintechs must be cheaper as well. They believe that while big banks and conventional financial institutions overcharge their customers for various services, the innovative Fintech providers are much more effective and thus, more cost-efficient.
And while cost-efficiency is one of the biggest goals for these companies, it certainly doesn’t suggest that they’re any cheaper than their traditional counterparts. What the people fail to realize is that any type of R&D, not just financial, is associated with huge costs and investments.
When Fintechs offer any kind of innovative service or product, be it an online payment mechanism or a crediting platform, they’re spilling huge amounts of money into their development. And contrary to the common beliefs, these services/products are often quite costly. In fact, there’s no rational reason that supports the idea of these innovative offerings being cheap, let alone free.
And if the Fintechs do offer cheap services, the chances of their legitimacy are somewhat low. For example, in the last year’s article, The Guardian reported that an online personal loan company called Wonga went bankrupt because its claims of making personal landing easy didn’t exactly match the reality. It turned out that they overcharged their customers and didn’t offer the same service quality as previously promised.
In conclusion, being a legit and high-quality Fintech provider is not at all a cost-free undertaking. It’s associated with various expenses, be it conducting the Research and Development, supporting the business model, or creating a customer-friendly platform. Thus, it’s totally a misconception that Fintechs are in some way cheap.
3. Fintechs are more prone to cyber-attacks
The online world is full of security breaches and hacker attacks, we know that. And since the Fintech providers are part of this digitized environment, offering their services through online platforms, people are concerned that their financial accounts will be undermined as a result.
Granted, being a member of the internet world, not to mention creating services/products in it, is susceptible to cyber-attacks all the time, it’s still worth mentioning that Fintechs are more secure and hack-proof than their conventional counterparts such as banks.
The development of technology and the internet is to “blame” here. While this process makes the whole platform less secure and more appealing to hackers, it also contributes to the improvement of firewalls and security practices. Online technologies such as cloud computing are allowing Fintech providers to use the fastest and most convenient online platforms, while also leverage the most sophisticated security systems built into the cloud.
When it comes to traditional banks, the security firewalls they use are somewhat archaic and obsolete. Compared to them, Fintechs are far more protected through digital security and innovative encryption models.
Therefore, when making online purchases of groceries, clothes, or anything else using alternative financial platforms, your chances of being hacked are far less than if you went for the conventional banking methods.
4. The Fintech is bringing an end to banking
This last, but certainly not least, misconception about Fintech is probably the most proliferated among Fintech aficionados around the world. In the early days of Fintech, when the trend of financial technological development was emerging, the providers were eager to promise a total revolution in the financial sector to their customers. They even went as far as predicting the end to traditional banking.
However, while Fintechs certainly brought a tangible change in this sector, they didn’t do away with banks and Wall Street by any stretch of the imagination. Banks are still running with increasing customers and innovative offerings, while Wall Street doesn’t lose its relevance. And that’s the point: there’s no need to completely overhaul these mechanisms that have proven useful over the last centuries. The two sides of one coin that Fintech and traditional banking represent need to collaborate and make finances more convenient.
And that’s what’s recently been going on in this industry. Fintechs are changing the idea of banking, enriching the field with innovative services and products, bringing more effective means of financial exchange.
On the other hand, Fintechs are leveraging financial stability and reliability that the banks are so famous for. These small entities are cooperating with banks that provide stable funding, as well as a much bigger and diverse consumer base.
Therefore, we’re not standing on the ledge of a complete financial revolution here. Banks and other financial institutions are here to stay, while Fintechs are certainly contributing to the innovative side of the industry.
Fintechs must address the common misconceptions
The myths and misconceptions are abounding in any field of human activity. And the Fintech industry is not an exception by any means. There are various misconceptions regarding the effectiveness, security, and other factors that drive fears among many Fintech customers and these fears need to be addressed by the Fintechs as swiftly as possible. Otherwise, they’re the ones who’ll suffer.