Technology is progressing at a rapid pace, and new technologies give companies opportunities to solve problems. Mobile technology allowed ride-sharing companies to improve the experience of taxi passengers. Cloud technology allowed software companies to provide cheaper, simpler applications. In the same vein, FinTech companies are now using technology to solve customers’ long-standing payment problems.
In the past, established banks, insurance companies, and private equity companies dominated the industry. Customers had no choice but to suffer through payment problems. Exorbitant fees, slow transfers and payments, and inconvenience were inevitable parts of the customer experience. That’s changing thanks to FinTech companies.
Today’s FinTech companies are solving customers’ problems and disrupting established financial companies.
Here’s how FinTech companies are solving long-standing payment problems.
Taking Advantage of Blockchain Technology
Blockchain technology is one of the new technologies FinTech companies are using to disrupt the financial industry. Blockchain is a shared digital ledger that can be used to record transactions. It can also be used to track the movement of assets. Anyone with an internet connection can use blockchain. Information is stored across a network of personal computers. Each record, known as a block, is timestamped and linked in a chronological chain to other blocks. Cryptography prevents users from being able to change previous entries.
The most famous use of blockchain technology is Bitcoin. Other cryptocurrencies, like BlackCoin, Nxt, and Dash also use blockchain technology. However, blockchain technology can be useful for other applications, too.
With blockchain technology, people can send money quickly and cost efficiently. This technology cuts out intermediaries like banks or payment processors. FinTech startups are using this technology to let customers send money transfers inexpensively. Now, customers don’t need to pay exorbitant fees to banks when they want to send money to their friends or family members.
This is especially useful for people who need to send money internationally. Traditional banks charge an average of $43 for international money transfers, which is an extremely high fee. FinTech companies are able to send money at a very low cost thanks to blockchain, and then they can pass the savings on to their customers.
Partnering with Banks
Consumers aren’t happy with their banks. In fact, only 23 percent of consumers say their banks are meeting their expectations. Transparency with pricing and fees is one of the big problems keeping consumers unhappy. They want more clarity about fees, and they want to be able to avoid paying outrageous fees.
While consumers aren’t fans of traditional banks, they may not be aware there are other options. Only two in five Canadians report using a non-bank alternative for financial services in the past year. FinTech companies could solve their long-standing payment problems, but they just don’t know it yet.
To mutually benefit from these tech solutions, FinTech companies and banks are becoming partners. The banks can provide the brand recognition and the existing customer base. The FinTech companies can provide an improved service that makes customers happy. By working together, both companies can benefit, and customers benefit, too.
For example, CIBC recently partnered with Borrowell, a FinTech company that provides online lending solutions. CIBC’s existing banking customers can get online loans quickly through Borrowell. Loans are adjudicated in real time, and the funds usually appear the next day in customers’ bank accounts. That’s a lot faster than a traditional bank loan.
Many banks have also partnered with R3 to use blockchain technology in the financial market. Seventy-five of the world’s largest banks are now part of this partnership. By partnering and using blockchain technology, banks will be able to make their payment transactions more secure. They’ll also be able to reduce their costs, and hopefully pass those savings on to customers.
Creating More Customer Convenience
One of the long-standing payment problems with traditional banks is inconvenience. When customers send money to their friends or families, they need to wait hours or even days for the money to arrive. In some situations, waiting may not be a big deal. In others, even a short wait can be a major inconvenience.
For example, consider a group of friends dining at a restaurant. The restaurant won’t split the bill, so everyone needs to pay together. The problem is, no one has any cash. They all just have their bank cards. The friends pull out their phones and transfer the cost of their meals to one person, who will then pay for everyone on a card. If that money doesn’t arrive instantly, the friends could be stuck at their table for hours, waiting for the transfers to arrive.
What a hassle! Fortunately, FinTech companies are solving this problem. Now, friends can instantly send money to each other with apps like Venmo. This makes sharing costs at restaurants a lot more convenient.
Creating Alternative Payment Channels
Traditionally, if you wanted to make a payment, you needed to log in to your bank account to do it. There isn’t necessarily anything wrong with needing to go a bank’s website to make a payment, but it’s not the most efficient method. FinTech companies are creating alternative payment channels. These payment channels let customers pay for services without having to log in to their bank accounts. This makes payments simpler and faster.
For example, some FinTech companies are using chat messaging to process payments. PayKey is one of the companies doing this. Users can send instant money transfers to their friends or family members through Facebook Messenger, Twitter, or other social apps. This makes it easy for friends to pay each other back or for family members to send money to each other. When a friend asks for money, you don’t need to leave the app and log in to your bank’s app. You can just push a button to instantly send the money you owe.
Revolutionizing Mobile Payments
In the past, consumers paid with their plastic debit or credit cards in stores. A long-standing problem with this arrangement is the visibility of the data. For example, it’s easy for someone to get a look at your credit card number and watch you enter your PIN in the terminal. With that information, that onlooker could spend your money.
Mobile payments are a way to solve this long-standing payment problem for consumers. Mobile wallets are encrypted, so they offer increased security. They make it easier for consumers to shop online, since they don’t need to type in as many numbers as they shop. Mobile wallets are also able to store information from loyalty rewards programs. Today’s consumers are very comfortable paying with their mobile phones. Among retail banking consumers, one-third pay with their phones at least once a week. There’s still a lot of opportunity in this area since so many consumers still aren’t regularly using mobile payments.
One big area of opportunity for FinTech companies is the corporate market. While consumers are starting to embrace mobile payments, corporate users aren’t. Corporate users are worried about the security risks of mobile payments. They may worry about security vulnerabilities in the technology or phishing attacks.
To overcome these problems, FinTech companies need to focus on hiring highly skilled IT professionals. When you hire great people for your team, you’re better equipped to solve problems.
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