Navigating business in the post-pandemic recovery using FinTechs
By Mahesh S. Raisinghani, PhD
Financial Technology (FinTech) companies — start-ups using online software to provide financial services — are creating a significant disruption in the traditional banking industry today, not only technologically, but also in operations, culture and most importantly, customer service. Customers today want self-service options to expedite the delivery of their needs. Therefore, financial institutions need to continually provide virtual advancements and options such as products and solutions to increase user experience and satisfaction while simultaneously ensuring that the privacy and security of consumers is not compromised.
A FinTech frontier for entrepreneurs is investment platforms, where insurgents such as Robinhood are pushing and jockeying for position in the online investing industry. The Robinhood app has more mobile monthly active users than the top legacy players (e.g., E-Trade, TD Ameritrade, Edward Jones and Fidelity) combined. Quarterly downloads of the top investment-based finance apps (e.g., Robinhood, Acorns, Stash, Betterment and others) have collectively grown 126% from Q4 2015 through Q3 2019. However, the gender breakdown is uneven. Men account for no less than 69% of total active users at each of the major investment apps. Acorns has the highest proportion of female users (30.4%), while E-Trade ranks last at 15.8%. The bottom line is that Robinhood’s no-fee trading has already forced legacy brokerages to eliminate commissions. Apptopia’s report indicates that the legacy players would be wise to follow Robinhood’s focus on mobile as well, indicating clearly that ease of access, self-service and portable options continue to lead the charts.
While digital transformations have been a desired aspect of banking, the COVID-19 pandemic has shifted this into a necessity and demand of consumers. With sudden changes in businesses and mandatory lockdowns, banks were required to act swiftly to modify operations and processes and accelerate the digital transformations and capabilities, not only from a business continuity perspective but also ongoing support. According to KPMG Global, the pandemic has greatly accentuated the importance of digitization. While FinTechs are well-placed to sustain the increased demand of cloud-enabled services, challenges will still be present based on the type of business.
Another strategy of leveraging FinTechs is by using fractional shares investing (i.e., pieces of shares that can be as small as 1/1,000,000 of a share, in lieu of investing in whole shares) offered by Fidelity Investments, Charles Schwab and Robinhood, among others. This allows anyone with a as little as $1 to get started in investing in stocks at any time instead of saving for the full amount of a share or several shares. You can invest in any publicly traded company that allows fractional shares investments. These trades are in real time and commission-free and offer a low-risk starting point. For example, one can purchase a fractional share of $1 in Amazon.com or Apple if she/he does not have the money to invest in the whole share(s) of the respective company. If you do not have a lot of money to invest, but you are keen to invest in individual stocks or Exchange Traded Fund (ETF)-based index funds, this provides an easier option to build a well-diversified portfolio. Fractional investing is a good way to limit your potential losses by putting smaller amounts into expensive stocks. For example, Amazon shares soared 72% in 2020. If you had invested $5 at the beginning of 2020, you would have had $8.60 at year’s end. The trick to building wealth with fractional shares is to increase the dollar value of your purchases over time.
Since the COVID-19 outbreak, we have witnessed major changes in banking from a credit extension and investment return standpoint. While this may have been a trend already in the making, the pandemic has expedited these changes and downfalls, leaving personal and commercial consumers in vulnerable circumstances. In these situations, FinTechs can still be a beneficial player in the transformation of the banking industry.
Mahesh (Michael) S. Raisinghani, PhD, is a professor of management information systems with Texas Woman’s University College of Business.
Page last updated 10:34 AM, July 26, 2021