Consumer spending is a powerful economic force. According to the U.S. Bureau of Labor Statistics, consumer payments account for nearly 70 percent of our economy, with the average U.S. consumer spending about $50,000 a year.
It’s taking some time, but consumer spending is rebounding from late-2000’s economic recession. Playing an important role in the recovery are education and tech services for finance companies along with financial institutions that are developed by “fintech companies” — often called “fintechs” — which specialize in developing financial technology.
Fintechs specialize in solutions that make it easier and safer to receive and send funds. Some also operate as financiers. As The Financial Brand notes, because fintechs provide financial solutions, some see them as competing with banks. In reality, fintechs and banks have a few product and service offerings that overlap, particularly loans and payment processing.
Furthermore, the definition of “fintech” is rather loose. It can be a company that develops B2B financial technologies for clients, or it be a company trying to compete with conventional banks. The expansion of eCommerce markets worldwide has helped in this regard. With more and more businesses setting up shop online, service providers have had to catch up. Now, the fintech sector encompasses companies that specialize in merchant services, payment gateways, and even internal employee payouts.
There’s been discussion about whether fintechs will eventually merge with banks, creating organizations that have a bank’s experience in customer service and core financial offerings combined with a fintech’s expertise in innovating and improving IT-based financial solutions.
Right now, operating independently gives fintechs flexibility to swiftly approve, develop, and implement forward looking strategies that promote the positive evolution of consumer spending.
Consumers snatching up real estate without understanding the terms and conditions of predatory loans that seemed great at first glance was a catalyst for the Great Recession. The same thing can happen with spending solutions, with credit cards being a well-known example.
Businesses want to close as many sales as possible. But customers who spend indiscriminately are often short-term buyers. They hit financial hard ground, tighten their fiscal belt, and don’t buy as much in the future. For generating long-term revenue, a consumer who spends discriminately and regularly is the optimal customer. By emphasizing consumer education for the financial opportunities they offer, fintech companies help create this type of customer.
According to Inc. Magazine, “With more global and online transactions, consumers need to tap into a wider range of ways to be paid and to pay others. It’s no longer about currency exchange, direct deposit, and PayPal, because new fintech solutions are changing the payment game.”
For example, some fintech companies are pushing the adoption of Bitcoin currency, many are promoting global payment options that accept worldwide currencies, and many are focusing on payment apps that integrate more payment options than before. Consumers have more ways to spend than ever before, and the range of options is only increasing.
Fintechs that offer loans are making a big splash in the consumer loan market. Banks typically have the most stringent loan requirements, while credit unions traditionally have the least stringent. But some fintech loans have terms and conditions that beat most credit unions.
Because fintechs tend to invest little or nothing in a brick-and-mortar business presence (some operate solely online), they often have low overhead compared to banks and credit unions. Some of what they save on operating expense is shared with customers in the form of loans with attractive terms and conditions. If you need to borrow to buy a car, purchase a home, or support your business, getting a loan from a fintech could be the most cost-effective option.
Gone are the times when businesses and their customers would wait days for checks to clear. Consumers want deposits posted to their accounts faster and payments withdrawn faster to increase real-time spending power and simplify account management. Businesses want payments to post faster to improve cash flow and quarterly results.
Regulated by the National Automated Clearing House Association (NACHA) and the Federal Reserve system, the Automated Clearing House (ACH) network recently set the standard for payment processing speed: same-day processing for practically any ACH payment.
With consumers able to buy anywhere, anytime using online mobile payments, it’s easy to see why businesses and their customers favor faster account transfers. From automated payroll deposits to personal purchases with payment apps, expect clearance times for all types of electronic payments to become even speedier moving forward.
Over the past decade, cyber security breaches at retailers and other businesses have made consumers wary of using mobile payments, especially when it comes to providing personal information mobile payment providers require for customer identification.
Of all mobile payment methods, credit cards have the dubious distinction of posing the biggest fraud threat. As Inc. Magazine points out, “Rampant credit card fraud… can take months to uncover.” During that time, victims are often taken for many thousands of dollars. In addition to taking months to uncover the fraud, it can take many more months to have stolen funds replenished and blemishes lifted from your credit report.
Securing funds in mobile payment accounts will be a major fintech focus for 2017. Retailers can help by remaining current with PCI DSS compliance requirements, not keeping credit card numbers and other sensitive customer data on file, and using websites that have transport layer security (TLS), which encrypts data as it travels from the browser of a customer to a business’ server.