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Survey On Consumer Attitudes Toward Fintech Spells Trouble For Banks

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As financial technology (or “fintech”) has begun encroaching on the territory of financial services, offering consumers new ways to pay, borrow, invest and more, few surveys have looked at consumer attitudes toward the growing sector.

A new survey by Blumberg Capital, a San Francisco-based early-stage venture capital firm that has invested in a number of such companies including Able Lending, Addepar, Lendio, Fundbox, FeeX, EarnUp, CoverHound and more, shows that three in five Americans say banks are failing to keep up with their needs and that 57% believe that traditional financial institutions will cease to exist in their current state within their lifetime.

The survey further found that 75% of respondents say that fintech gives them more power over their finances, 65% say that fintech gives consumers access to services previously available only to the wealthy and 69% say that such tech will help everyone be better off financially.

“Most people feel that fintech is a good thing for consumers and for small businesses, that it will help make things more efficient, give them more information, more transparency, more automation of things that should be automated,” says David Blumberg, founder and managing partner.

“An example would be, you never want to miss a mortgage payment,” says Blumberg. “There should be a system for this — an automated system that automatically pays down your debt. And not only is it automated and straightforward, but it’s smarter, so it knows when you should make an extra payment to reduce your total interest paid. It acts like a watchdog that watches the banks so that if you make an extra payment, they properly credit you with paying down principal first and not just telling you you made two interest payments in advance.”

Still, the Blumberg survey found three in ten are unsure of what to think about fintech, echoing a report by market research firm Mintel in March that found that significant percentages of consumers still lack awareness of some popular areas of fintech. For instance, it found 55% had never heard of a robo-advisor, a service such as Betterment or Wealthfront that uses algorithms to determine the best investment strategy based on an investor’s timeline and goals and then automatically invests accordingly. Additionally, 39% had never heard of a money management mobile app, which could describe any number of budgeting and savings services. Even for mobile payment apps, the most well-known type of fintech product, 50% said they didn’t like using them or had no interest, and 47% said the same of the hot peer-to-peer lending area populated by well-known brands such as Lending Club and Prosper.

But the Blumberg survey found broad support for the types of services that fintech companies offer. Querying 2,000 adults age 18 and older who agreed to participate (which meant no sampling error could be calculated), it found that 62% of Americans feel they pay too much interest on debt, 72% say it would be helpful to have a customized, automated way to never miss a payment and minimize the total interest on their loans; and 76% of Americans believe that the financially underserved, such as those with low credit scores or bad employment histories, need access to loans and credit outside of the traditional banking system. In recent years, a number of fintech companies have cropped up to help consumers refinance high-interest debt and offer customized payment options, while others have begun using algorithms to be able to offer credit to so-called “thin files” who have too little credit history for a credit score or more payday-type borrowers whose credit scores are too poor for traditional loans.

Though two-thirds of those surveyed say fintech makes solutions previously only available to the wealthy accessible to everyone and three-quarters say it helps democratize financial services, the highest-income bracket in the survey, $75k+ was actually most likely (75%) to say that fintech helps more Americans be better off financially — by six to 12 percentage points compared to the other income groups. As would be expected, younger age groups were more likely to see the benefits of fintech or believe that access to it would make their lives easier and that such technology would democratize services.

In other evidence that fintech firms could do a better job of supporting lower-income households, those in the lowest bracket — less than $25k a year — were two to five times more likely to be unsure of how important it was to have access to the latest technology, and the least likely to believe that fintech could help democratize services.

But overall Blumberg says fintech companies, “should feel buoyed because consumers want innovation. They trust that fintech companies are on the side of the little guy. They think innovation that helps level the playing field and makes things more efficient and stops the shoe leather problem, having to go to the bank back and forth.” However, they shouldn’t innovate at the expense of security, which was named as the top feature Americans want to see from their financial institutions, followed by reasonable fees.

As for a takeaway for banks, Blumberg says, “Banks need to adapt, adopt or hasta la vista, baby. Banks cannot continue to do what has made them successful for the last 50 or 100 years. We are at a fundamental changing point because of big data, cloud infrastructure, mobile telephony, social media, artificial intelligence, machine learning, etc. That combination of new technologies have unleashed incredible power from the bottom up. Yes, some of it is used for hedge funds for sophisticated trading, but the business-to-consumer portion of our portfolio is focused on helping to level the playing field, helping Joe Lunch Pail do better in their finances. Traditionally, that’s only been available for the wealthy. Fintech makes it cheaper and easier to distribute those tools of algorithms, that advantage, to average people.”

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