Why Consumer Fintech is alive and well

Consumer fintech is not dead. It must only address the basic financial needs of most Americans.

The fintech industry is facing its fair share of challenges this year. Turmoil in the banking sector continues as interest rates rise and investor preferences shift towards business-to-business (B2B) fintech companies. Yet, despite these obstacles, millions still have a huge opportunity to improve financial performance.

Globally, the rise of fintech coincides with increased financial inclusion. By 2021, 76% of adults worldwide had a bank or mobile account, up from 51% in 2011, Plaid data shows.

Unfortunately, this growth in financial inclusion is not evenly distributed. In the United States, 59% of adults have access to a bank or cell phone account, which drops to 45% for those living in poverty, according to data from the Federal Deposit Insurance Corporation.

Millions of Americans still need to be included in the financial systems needed to access credit, build wealth and even pay bills.

Capital markets

Fintech startups attracted $15 billion in venture capital funding in the first quarter of the year, according to CB Insights’ latest State of Fintech report. Much of this funding comes from Stripe’s $6.5 billion mega round in March.

Even excluding Stripe’s outlier, B2B software as a service (SaaS) attracted 44% of funding in 2023, in line with a trend of shifting away from business-to-consumer (B2C) and even direct B2B in fintech . Still, B2C fintech received 34% of funding, according to Dealroom.co data.

To remain motivated by the potential of consumer fintech, we must separate pessimism about capital markets from the ability of fintech companies to bridge wealth gaps and provide financial tools and services to those who need them most, said Liza Landsman, CEO of Stash.

“As long as we believe that consumers will want to buy and sell things to have money later in life — no matter what the capital markets do — this criticism will remain a fallacy,” she told me in an interview. “There are billions of underserved people who do not have access to financial services – the power of fintech is its ability to bridge this gap.”

Financial basics

Consumer fintech is an area subject to arguments about oversaturation. However, most consumer fintech has focused on investments and wealth management, leaving a large part of the mass market underserved.

Although there are seemingly endless options for retail investment platforms, 44% of Americans can only cover an emergency expense of $400 if they borrow or sell something. On top of that, the World Bank’s Global Findex database reports that around 1.7 billion adults worldwide, about 31% of the world’s adult population, do not have access to formal financial services such as bank accounts, credit cards or loans.

Consumer fintech companies must focus on financial fundamentals. Consumers are increasingly demanding that their fintech applications help them learn more about building an emergency fund, checking and improving credit scores, and starting a savings habit, according to Plaid’s 2022 Fintech Report.

It is time to shift the focus back to creating solutions that meet the actual financial needs of the average person.

Healthy habits

One of the keys to success for consumer fintech companies is creating better customer habits. So instead of just adding more products, fintech companies should focus on helping people break through mental barriers and develop healthier financial behaviors, said Daniel Crosby, Chief Behavioral Officer at Orion Advisor Solutions.

“By cultivating these habits, clients can see compounding benefits over time, such as increased retirement savings and improved financial health,” he told me in an interview.

Of course, building these habits takes time, and it can be challenging to judge success in the short term. But for companies committed to the long game, there’s a huge opportunity to make a difference in people’s lives while taking market share.

For example, through better education and budgeting tools, consumers can take control of their finances and create generational wealth. This kind of long-term impact is invaluable and something companies should strive for when developing their user engagement strategies.

Experiences over services

The future of consumer fintech lies in its ability to create experiences, not just services. To do this, companies must learn to maximize micro-moments and raise expectations to build financial stability.

Fintech companies should think back to the basics and develop creative solutions to provide users with real-time visibility into their finances and personalized guidance to manage their money by focusing on the basics of saving, budgeting and healthy financial habits.

Despite uncertainty in the market, fintech is still alive and well. As long as there are still people with unmet financial needs, technology will continue to play an increasingly important role in enabling these transactions.

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