The following is a guest post from Brad Walker, CEO and cofounder of Income&, a company reinventing the idea of fixed-income investing.
You can only be the new kid on the block so long. At some point, you are no longer the new kid because you have become one of the gang. Sometimes it’s hard to pin down exactly when it happens, but it’s often more obvious in retrospect.
Observant industry insiders will tell you the fintech sector is just now reaching this liminal point. What began as a few online lenders with a new business model and low overhead has blossomed into an almost complete financial services ecosystem offering a plethora of loans, new investment products, and a wide range of consumer banking and payment services.
Fintech firms are giving consumers what they want – transparency and full access to data. Creating this transparency and giving customers all the data they need, together with a convenient easy-to-use online delivery platform, has led to general public access to many areas of the financial markets that have long been the sole purview of professionals. This “democratization” of the financial markets is unquestionably the key driver of the ongoing success of the fintech revolution.
Product development drives democratization as fintech creates new markets and reshapes financial services
Product development in fintech is as much about the process as the product. Given what clients want inevitably changes over time, the goal is to educate the client as quickly and painlessly as possible, and fintech firms create transparency about their products and business models through client education. You don’t have to “sell” somebody a product if you educate them enough that the benefits are obvious.
It’s important to note the low-overhead online business model also plays a critical role in how the fintech industry is managing to democratize the financial sector. Lower expenses keep service fees down and help make these new investment products more accessible to the retail investor.
Technology really comes into play in three ways in the fintech business model. First, modern customer experience design and visualization tools make it possible to more clearly educate potential investors and clients in a very short period of time.
Second, modern technology also enables complex financial products to be sufficiently simplified to be understood by and accessible to smaller retail investors. Related to this, technology obviously plays a central role in creating a “one-stop shop”, which is an essential part of an ideal customer experience today. Technology also underpins the ability of fintech firms to “customize” their products to meet a broad range of client needs/preferences.
Third, technology provides additional transparency, in that customers can access information about current investments or prospective investments 24/7. Ongoing electronic ledger developments like Blockchain will continue the trend toward increasing transparency in financial markets in the future.
You cannot create an ideal “customer experience” for all customers at all times. Instead, the goal is to provide a flexible, easy-to-use interface, and give the customer all the information she needs about your products to easily select investments and maintain ongoing transparency to those investments. We’ve done that with our mortgage-based PRIMOs by making our interface simple and easy to understand.
Focus on providing client education helps create sustainable business model
With PRIMOs, we’ve noted two general types of clients, the “buy quickly” client and the “dig deeper” client. The “buy quickly” client might spend as little as an hour or two in research before jumping in and buying PRIMOs, but the “dig deeper” client may spend weeks doing research before pulling the trigger. Our business model is to make information and education available to both types of clients so that each can do their own thing.
A commitment to providing data/education to clients also helps create a sustainable business model. Providing more extensive data is what helped the “dig deeper” client to invest, and providing more high level information is what led the “buy quickly” client to invest.
Offering investment products that deliver the expected returns and less risk, and continuing to provide data, educate clients and create transparency is what will bring customers back and makes the business sustainable. Even when using technology, there is a learning curve to any investment, so providing in-depth information in customer accounts enables them to continue to interact with and assess your products, and notably increases the chances of repeat business.
Fintech is revolutionizing the way business is done in the finance sector. The ongoing process of democratization is like a snowball on a hill that has just begun to gain momentum. As long as fintech companies continue to develop products that are easy to understand and meet 21st century consumer expectations for transparency and ease of use, this revolution giving the masses broader access to financial services will continue and thrive.