The US fintech market is growing at an incredible pace. Research reports state that the industry is seeing an 8.6% cumulative average growth rate (CAGR) which is going to continue at the same rate until the year 2024.
The way fintech has transformed the US financial sector has a huge role to play in spelling this growth rate. It has successfully transformed the way people interact with money, be it for lending, opting for loans, investing, buying insurance or funding startups.
Digitally aware and active consumers are becoming more open to adopting fintech into their daily lives. This has sharply increased the number of people using online mobile phone payments and digital-only banks. As of 2018, the total transaction value in the digital payment space is estimated to be US$ 880 Bn.
The key role that fintech plays in the US economy is reflected by the 57% share it accounts for, in the global fintech market. This has been possible because the US consumer has become cognizant of the many benefits the fintech industry brings to them. They acknowledge and enjoy the convenience, simplicity, security, transparency, and customization available thanks to the various fintech tools that have been introduced to the market, over the last decade.
Which fintech segments are aiding this fast growth?
Fintech has been smoothly integrated into the financial fabric of the US. As such, all financial services have adopted and are utilizing fintech in some form or the other, be it loans, savings, personal finance, or insurance.
The financial services that have been adding to fintech’s growth rate in the US, the most, are:
1. Digital payments
2. Personal finance
3. Alternative lending
4. Alternative financing
5. Insurance distribution (online)
There are other upcoming segments in the fintech arena that are closely connected to fintech yet does not fall completely under its purview. They are:
2. Robo advisors
What are the key market trends in the fintech industry?
As mentioned earlier, five segments are spelling the fastest growth in the fintech industry. They are the ones that are forming the key market trends, too.
This segment has seen the largest growth to date. This is primarily because of the sheer quantity it has been operating at. Digital payment is all about consumer transactions. Given the volume of transactions for products and services the US sees every day, digital payment has become one of the key contributors in boosting fintech growth in the US financial services market. Digital payments include all kinds of electronic payments including mobile payments, via smartphone apps. The digital commerce segment has been recorded to have clocked US$ 765.5 Bn in the year 2017.
Next comes, the Personal Finance sector, that has boosted fintech growth in America via automated investment services. This has enabled private investors to provide even better portfolio management services, by aligning their investment strategy to automated recommendations, presented by data analytics.
The personal finance sector saw a total transaction value of US$ 201 Bn in the year 2017. Out of this, approximately, US$ 189.4 was contributed by Robo Advisors.
Fintech trends for 2020 and beyond
While alternative lending and financing have been the go-to financing options for startups and small businesses, business growth loans are helping businesses expand further. Industry experts and economists are hailing the year 2020 as the year that will lay a solid foundation for the continued growth of fintech in general and alternative lending, in particular.
One of the most significant factors that have made fintech and its products, such as business growth loans, so popular amongst entrepreneurs is its ability to disburse loans at lower cost. Also, the Federal Reserve has helped considerably by keeping interest rates low within a range of 1.50% and 1.75%. According to industry sources, the rates will not be fluctuating any further than these set rates for the current year, at least. This is going to boost alternative lending further.
Lending using technology
Fintech has helped streamline the overall user experience in the lending industry. This has helped boost overall turnover in the industry by reducing underwriting and loan origination time and cost, and by also easing the loan repayment process for borrowers. The trend of using lending tech will continue well into 2020 and beyond.
Fintech lending has welcomed small business owners whose credit requests have been turned down by banks given their low or non-existent credit scores. Fintech lending has thus found a large market which will help add to its foundation, further.
Use of ML and AI
The use of Machine Learning (ML) and Artificial Intelligence (AI) are inherent in fintech. Fintech companies are steadily integrating them into more segments in the financial services market, with greater propensity. After personal finance, underwriting, and loan origination, segments such as UHNI wealth management, refinances, and mortgage lending, too, are now seeing ML and AI, meld into their processes. AI, specifically, has the ability to automate complex processes in financial services, and this will be used optimally in 2020 and the years to come.
While digital banking has been reducing in-person customer interactions, it has become indispensable to create a consumer-friendly interface that makes user experience easy for people, when they interact with the digital interface. This does not stay limited to just website UI but end-to-end user experience throughout the process.
The US has already seen a major shift to the digital banking platform with about 75% of Americans now using mobile apps for their banking requirements. The next step and trend to watch out for will be making transactions and borrowings much smoother than before.
This technology has become a pathbreaker in the fintech scenario. The distributed ledger technology allows the maintenance of a shared database of entries. These entries are confirmed and encrypted with irreversible time stamps. Blockchain technology has helped financial services firms to skip time-consuming, bureaucratic processes and also lower costs.
Among other benefits, blockchain technology will help fintech:
1. Speed up loan approvals
2. Offer real-time transaction data
3. Connect borrowers with lenders
4. Track and manage loan repayments
5. Leverage digital currency
6. Increase access to business growth loans
With an aggressive CAGR and scope to spread and grow further in the area of financial services, fintech is just beginning to realize its true potential. With both consumers and traditional banks embracing the sea change brought about by fintech, it is only a matter of time that it surpasses its 8.6% growth rate forecast.