While traditional financial institutions continue to cower (or more recently collaborate) in the face of fintech, we are hopeful that the sceptics are depleting their initial denouncements. If not, one fresh statistic stops any lingering critics in their doubtful tracks: it has only taken two years for global fintech adoption to double, approaching official mass adoption. With positive future prospects and a host of staggering spikes in market growth and variation, fintech is well and truly here to stay.
In the release two weeks ago of the EY fintech adoption Index report, Australia and China both slipped into the top 5 countries for fintech adoption. Our shifting demographics and the overarching digital evolution – especially in the payments realm – deserve exploration in light of such notable growth.
Taking a look around
In this year’s study of 22,000 digitally active consumers, EY found that a staggering one third of global consumers have adopted fintech in some form, partly thanks to increased awareness about available services.
Emerging markets (Brazil, South Africa, India, Mexico and China) are sitting on a markedly high average of almost 1 in 2 consumers using fintech offerings, with China (69%) and India (52%) up front. Although internet penetration in these areas is relatively low, fintech use is soaring. EY attributes this to these countries’ choice to tap into “the tech-literate, but financially under served population, of which there are particularly high ratios in emerging countries.” This is not a fintech-specific trend: a lack of efficient legacy infrastructure warmly welcomes innovation.
But further South, where traditional banking would be labelled adequate and fintech awareness has risen by 25%, Australian fintech adoption has reached what EY calls an ‘early majority’, already surpassing the US and global average with 37%. Even more notably, Australian adoption is triple what it was in 2015. This increase is amongst the highest of global spikes, and the numbers are here to stay.
Who are the adopters?
Compared to 23% in 2015, only 10% of Australian respondents cited that they prefer traditional financial service providers over fintechs. A substantial number of fintech users are young adults entering the workforce. Yes, this is because they’re tech-savvy. Yes, it’s because fintech caters directly to those with a smartphone in their hands. And yes, it’s because the youth don’t have long-standing loyalty and relationships with traditional banking institutions.
But it’s also because they are entering into a new phase of their financial life. New employees are faced with salaries, savings, families, properties and student loan repayments. And additionally, the financial crisis diminished confidence in traditional financial services. Catering to the emerging generation is where fintech has had a sound upper hand.
A significantly large proportion of fintech users (relative to non-users) are also entrenched in the online economy, with most fintech supporters also using paid and unpaid online services like streaming (74%) or messaging/video chat (66%). The preference for tech offerings encourages digital adoption in all aspects of life - including finance, especially if it’s mobile-focused.
Paying me and paying you
While adoption in Insurance has tripled, fintech has found its primary home in money transfer and payments services. Payments providers using fintech have grown from less than a 5th in 2015 to a now unparalleled 50%, and are set to reach 88% in the future. The Australian payments sector is particularly ahead, with adoption rates of 59% (fourth in the world).
And rightly so, particularly in response to the sector-wide digital disruption. Digital-only banking, mobile-first payments, international payment services like the ones we offer at Airwallex and a host of other technologies all benefit from the advent of Open Banking and instant payments (to be implemented in Australia’s immediate future). As competition is nurtured, fintechs will continue to innovate and evolve in response.
In a smartphone-centred world, users want to manage their lives and finances digitally – including payments. Early and influential fintech adoption relies on the ability to exploit technological innovation to within an inch of its capabilities and deliver services that focus on user experience and mobile-first integration.
A lot of China’s success isn’t actually happening at the innovation level. The report notes that their “open regulations allow both fintech and non-financial services firms to innovate how financial services products are offered, which enables their mobile leadership.” The successful development of their fintech ecosystem is significantly owing to a system of Open APIs and regulations that encourage collaboration, partnership and change.
The FCA was voted first in the world for fintech regulations by EY last year, while the Regulatory Sandbox inspired Australia’s equivalent, and Open Banking is on the cards for the immediate future. Countries cultivating a culture of innovation can take a leaf out of the open books of both China and the UK (and beyond).
Full steam ahead
EY reinforces two core characteristics of successful fintech firms: “a laser-like focus on the customer proposition and a willingness to apply technology in novel ways. These are powerful differentiators in a marketplace where many product-focused incumbent financial services companies struggle to deliver the seamless and personalized user experiences that consumers increasingly expect.”
Ultimately, adoption is set to increase to a global 52% in the next few years (43% in Australia). By focusing on regulations, offering economically transformative services with fresh, mobile-first appeal and tapping into existing markets with a clear value proposition, fintechs will continue to garner mainstream success, much sooner than expected. Traditional institutions need to take note, and then take action if they wish to benefit from this unprecedented growth. Collaboration and integration.