5 FinTech Trends Enabling Access to Financial Services & their Dangers

  1. Focusing on growth may distract FinTechs from the right impact metrics.
  2. Positive selection may lead to exclusively servicing wealthy consumers which can increase inequality.
  3. Leveraging alternative data may push users to share more data and reducing privacy.
  4. Moving fast may lead to FinTechs underestimating the importance of regulation.
  5. Improving user experience may make it too easy for consumers to take risky actions.

1. Focusing on the wrong impact metric

Trend: Focusing on growth

Danger: By assuming growth means consumer need, FinTech leaders and investors may not be investing enough on measuring their impact on society.

Opportunities

  • Leverage expert 3rd party institutions to measure your impact objectively. FinTechs don’t have to go about measuring impact alone. CFSI, for example, has built a methodology for measuring financial health which can be leveraged to measure the trend of your consumers versus an equivalent control group.
  • Align your business models with financial health. The more business models are aligned with the impact on consumer financial health, the better. Earning, for example, relies on a tip based revenue model which ensures that if the consumer sees value from the product, the company is compensated.
  • Clearly define and track impact metrics at the board level. Not having clear impact metrics and boundaries embedded in business decisions can lead to negative consumer impact even when all the financials point up and to the right. As discussed in a previous financial health article, founders should clearly lay out how they intend to measure their impact on society. This should be visible to all employees, investors and even consumers to ensure accountability and alignment towards a common goal.
  • Define boundaries to stand behind as you build product features and scale. This will be especially important when the going gets tough and investors put pressure to reach a certain return on investment.

2. Focusing exclusively on wealthier consumers

Trend: Positive selection

Danger: By often going after wealthier segments, FinTech companies may be furthering the income gap instead of reducing it.

Opportunities

  • Invest as much time trying to change consumer behavior (nurture) as you do marketing to the right consumer (nature). By doing so, FinTechs can give opportunities for consumers that otherwise seem to not have potential. While this is significantly harder, it is infinitely more valuable for consumers.
  • Focus on neglected consumer segments — by understanding and fostering trust with a specific neglected consumer segment, FinTechs can build massive businesses. Chime is a great example of a company following this ideology by focusing on providing free checking accounts to subprime consumers that have been dinged by overdraft and service fees for too long.

3. Requiring users to opt into sharing more data

Trend: leveraging alternative data

Danger: By having users opt to share more data in order to get better products, FinTechs are pushing us down a path where consumer information is no longer private.

Opportunities

  • Have clear policies to justify the use, quality assurance, and retention of this data before doing the analysis is necessary.
  • Ensure that the use of data does not have disparate impacts on specific consumer segments.
  • Only use data if it is critical to providing more affordable options to a wider customer segment should it be even considered.

4. Underestimating the importance of regulation

Trend: Moving fast

Danger: By trying to move too quickly and not investing enough in legal and compliance teams, some FinTech companies may be doing more harm than good.

Opportunities

  • Ensure every individual in the company should understand regulations and their purpose in protecting consumers, especially the product and engineering teams building products.
  • Compliance training should not be a box to check but part of formal development and performance reviews.
  • Leadership should invest in processes to oversee risks without impacting velocity by embedding compliance members into individual teams and aligning incentives.

5. Making it too easy for consumers

Trend: Optimizing user experience

Danger: By focusing on conversion, FinTech companies are reducing necessary consumer friction and awareness which may lead to more harm than good

Opportunities

  • Integrate well-placed friction points in workflows to ensure that consumers take a moment to review the implications of terms and pricing.
  • Ensure transparency by boiling down the implication of decisions in dollar terms and providing clear pricing of alternatives in the market.
  • Focus on educating users throughout the journey is as critical as making that journey accessible.

Closing thoughts

  1. Fostering social impact investing — the more we have investors who care as much about impact as returns, the more businesses will learn to balance these two forces.
  2. Supporting regulation — we must continue to support regulators and ensure they deeply understand consumer needs and market risks in order to craft sound regulation.
  3. Leveraging third-party rating agencies — we must build standards as to how to measure, track and report impact to financial health from different financial products.

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I enjoy building products that try to make the world more equal. Head of Product @Ramp.

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Geoff Charles

Geoff Charles

I enjoy building products that try to make the world more equal. Head of Product @Ramp.

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