Digital Dollars
How FinTech and Mobile Finance Apps are Changing the World
FinTech refers to “innovations in the financial and technology crossover space, and typically refers to companies or services that use technology to provide financial services to business or consumers”. This category encompasses many mobile finance applications, like Mint, Stash, Robinhood, Acorns, CashApp, Venmo and banking apps, seeing as though they go hand in hand and are built to be compatible with each one another. At first glance, one may think that finance apps are not changing the industry standard or doing anything innovative within the field. During the initial boom of app development that followed the launch of smart phones and the Ipod touch, the goal of most personal finance apps was to merely make the basics of banking available online. Major banks just wanted to stay current with the times and keep up with the rest of the institutions that were making their services available to online users. However, since then there have been remarkable improvements in the world of mobile finance. The overall goal has shifted from that of sustaining the market, to creating disruptive change through innovation.
Change in relationships
One of the main changes that have stemmed from mobile personal finance applications is a drastic change in our relationships. The ease of access that comes from these apps and the educational opportunities that stem from their use have not only changed our personal relationships to money, but have also changed the way that we handle money transactions our friends, as well as affecting the ways in which we teach money management to generations to come.
Our own personal relationship to money hugely impacts our ability to live our lives to our fullest desires rather than just merely surviving. Our money management habits tie closely with many other aspects of our lives, including what we do, where we live, who our social groups are, social standing, etc. Moreover our education on financial literacy in the United States is almost nonexistent with 57% of adults in the U.S. being financially illiterate, compared to the 33% worldwide rates. This means that most of our personal understanding of finances stems from our childhoods, which creates the opportunity for bad spending practices to be passed down. Statistics show that how children pick up their future financial habits from how their parents managed money. Amongst the children of those who have massive amounts of credit card debt, “58% spend money as soon as they get it, compare to just 44% of children whose parents have no debt”. A healthy relationship with money means that parents are more likely to talk to their kids about finances, what to avoid and what to do when first starting to build your credit, how how to maintain your money. In terms of changing family dynamic when it comes to finances, mobile finance apps have started to break the chain of familial curses when it comes to money management by creating learning tools for both adults and kids. Teaching kids about money early on leads to overall better financial literacy rates. Roger Young, a senior financial planner at T. Rowe Price even goes as far as to say that “Kids who have the freedom to manage their own money seem to have better money behaviors and are more truthful with their parents about how their money was spent”.
Our level of understanding when it comes to personal finances, mobile finance apps have begun to make a big change in our understanding of money management and can teach us financial literacy so that we may undo the bad habits that have been established over time. As reported by the George Washington University School of Business “in the United States, 92% OF 18–37 year olds use finance apps”, primarily to track spending and pay bills. In this way, they are making an effort to improve their personal relationship with money and improve their financial standing, leading to overall higher rates of financial stability, less debt, and a healthier relationship to money. I predict that as time goes on, more people will take it into their own hands to teach themselves about finance and turn to apps like Mint or NerdWallet so that they may learn tips on how to raise and maintain a good credit score, budgeting services, and advice on how to properly save.
Peer-to-peer payment apps
As far as the FinTech industry’s effect on relationships amongst one’s peers, I found surprising results. When I initially began writing this article, I was under the impression that peer-to-peer payment apps such as PayPal, CashApp, and Venmo would have a positive affect on relationships because of my own positive experiences with them. From what I have seen through my personal use of these apps, they tend to take the burden out of social outings and event planning by giving people the ability to easily and automatically transfer money back and forth to each other digitally. However through my research, I discovered hidden motives behind the use of these payment apps. Though the app Venmo processes more than $300 million in payments each day and estimates to process more than $100 billion a year, most logins to the app are not for payment purposes. It was even said by a Venmo spokeswoman that the “most active users check Venmo daily and the average user checks Venmo two to three times per week- and its not for payments, but to see what their friends and family are doing”. The largest use for peer-to-peer payment apps have been to spy on peers, trying to keep tabs on what they are spending their money on and more importantly with who. Since the feature where you can see your peer’s payments is the feautre that seems to draw users back to their app, I doubt that a removal of the feature will come anytime soon. However, as time goes on and more people catch onto how this feature can be used against them, more people may chose to take advantage of the privacy settings available. In terms of peer-to-peer payment apps in general, they will only continue to expand as time goes on.
Change in Work
The realm of FinTech has drastically helped changed the business world, more specifically it has eased the process of maintaining small businesses and sourcing funds. When it comes to small businesses, the emerging FinTech industry has been monumental in helping them stay afloat. Companies like Square and PayPal have aided with payment processing to accommodate the 80% of Americans that prefer to pay with debit and credit cards. A few years ago I rented out a booth at a New York street fair to sell some art and laptop bags that my mother and I had created. At the time, most people that were interested in buying our products did not have cash on them and felt too inconvenienced to go to the nearest ATM machine. The only reason that we made as many sales as we did that day was because prior to opening our booth we purchased a Square card reader, a tool that you could connect to your phone that allowed people to swipe their credit cards, sign and complete their transactions through PayPal. Methods like these have also been implemented by food trucks and other street vendors. In addition accounting application such as Sage Accounting, Freshbooks, and Quickbooks Online allow for small businesses owners to keep record of their company’s finances and access them from a mobile device.
One of the most revolutionary uses of FinTech has been the creation of crowdfunding programs like Kickstarter, IndieGogo and GoFundMe. These mobile applications allow users to pool money from a multitude of donors in a seamless and efficient way in order to crowdsource the funding for a particular project, operation, or startup idea. Out of the Kickstarter projects that raised over $1 million, 37% were to fund game creation, 30% were for tech startups, and 26% were for design projects. Around $17.2 billion dollars is generated yearly through crowdfunding platforms in North America alone. Aside from its use in business and work, these apps also allow people to monetarily support others, which has changed the way that people interact socially and relationship wise. One of the most popular uses has been for people to donate in order to support upcoming costly medical procedures that would otherwise put those in need of medical attention into a deep hole of debt. If someone comes across your cause and wants to support, they can help change your financial circumstances and ability to afford proper healthcare with just the click of a button to donate and share your cause.
Other crowdfunding platforms such as Patreon allow users to pay for the monthly subscriptions of artists in return for specialized content, inside looks behind their processes, monthly deliveries, and direct access to their favorite artists. Services such as these allow for fans to support the artists that they admire and have provided a source of additional income for freelance designers, painters and the like. Crowdfunding apps have revolutionized our sense of community and how we can use our money towards supporting causes, projects and people that we believe in. Apps like these continue to gain traction as a financial alternative to loans and more traditional methods of pooling money. There are projected to be at least 12,063,870 campaigns by 2023 and the crowdfunding market in general is projected to grow to $300 billion by 2030.
Change in Governing (national and international relations, laws, politics, criminal justice)
With the movement of personal finance and money transfers to the internet, came a new way of thinking about money in general. As time went on, more and more people began to envision a decentralized currency based online and concept of cryptocurrency was born. Bitcoin was the pioneer of the cryptocurrency movement, first being created in 2009 by a developer that goes by a pseudonym and has yet to be revealed. Since then hundreds of altcoins have been developed to serve different purposes and meet different needs, with some being built for privacy and anonymity with transactions, speed with international transfers, and some created with global trust in mind to be used with traditional banking systems. As the world of cryptocurrency continued to expand a market for trading cryptocurrency developed that is similar to that of the stock market. However, bitcoins and altcoins are often used for traceless illicit purchases on the internet and deep web, leaving cryptocurrency with an overall negative perception amongst the masses. It is estimated that around $76 billion of unlawful activity per year involves Bitcoin, which makes up 46% of all Bitcoin transactions. Due to its general misunderstanding amongst the general public, negative connotation with illegal activities, volatile markets, and lack of general need, cryptocurrency has fallen short of where it was projected to be at this time. As time goes on and there becomes more of a need for forms alternate of online payment and transactions with privacy in mind, cryptocurrency may once again gain momentum. However, I do not predict any substantial growth in the cryptocurrency market or its use any time soon. Similar to Kodak with its boom in popularity followed by its quick downfall, cryptocurrencies full potential was never reached because it has “not realized its own limitations, and consequently its strategy for revival [does not stand] much of a chance”. Like the Kodak brand, cryptocurrency as it currently is faces too many technological challenges and negative perceptions for it to be taken seriously as a dependable form of currency.
Earlier in this article, I touched on how money transferring apps like PayPal, CashApp, and Venmo were changing how people dealt with money on a personal level. However, that is not the only way that these applications have been of use to the general public. In recent months, with the onset of the the Covid-19 pandemic a total of 36.5 million Americans lost their jobs within the span of two months and that number continues to rise. In response to this came the Cares Act (Coronavirus Aid, Relief, and Economic Security), an economic relief plan introduced to the Senate in March of 2020. One of the most talked about aspects of this bill was the stimulus package awarded to independent, taxpaying American citizens. In order to aid in the distribution of stimulus checks, the United States treasury department allowed for people to opt to receive their portion of the relief fund through payment apps for an easier and quicker experience. The government’s use of mobile finance apps such as CashApp and Venmo to distribute stimulus checks during the pandemic may have set a precedent for how the United States government distributes funds to its citizens from here on out. The use of these apps to distribute the stimulus checks was received positively by the general public and could be used as a guideline for how to modernize the process of receiving federal funding and benefits or even tax returns in the future.
Change in Social Institutions
Finance apps have also contributed to a change in social institutions. In this case the social institution that I want to cover is banking in general. Within the past decade, traditional brick-and-mortar banks such as Wells Fargo, Chase, and Bank of America have begun to push their online banking apps as a way of simplifying simple tasks for their account holders. Purely online banks with no physical branches like Ally, Chime, Revolut, and Slash have also started to gain traction amongst millennial bankers that prefer to handle all of their finances online. These banks entice potential account holders with their impressive benefits and features such as fee-free transactions, global payments, cryptocurrency exchanges, spending reports, real-time alerts, and Touch-ID security features. In previous years, financial experts like Lee Travers, CEO of the U.K. based Iam Bank, believed that the likelihood of FinTech and mobile applications replacing traditional brick-and-mortar banking was slim to none. In a 2017 interview, he mentioned how “The traditional environment is holding onto cash-cows, very valuable products that people have to consume and use” whereas “The FinTechs are unknown, challenging the norm, and they are exciting but if you look at their volumes and the numbers that they have achieved, they haven’t gained that trust yet”. This general lack of trust in FinTech stems from its position as an emerging industry. As previously discussed in class, there are several known disruptive principles that can be used to categorize and identify disruptive technologies. Amongst these factors are an initially “inferior performance that is cheaper and fast improving, leading customer rejections, emerging market success in isolated niches, and intersecting trajectories leading to an invasion of the incumbent’s market”, which are all applicable to mobile banking apps.
However, this the apparent lack in trust in banking apps looks like it has changed in recent times as FinTech and mobile banking applications have begun to show a steady growth rate over the years. In 2017, brick-and-mortar banks had a major setback with 1,045 branches being closed within a two year span and massive layoffs. HSBC has even maid it known that “branch visits are down by 40%, with 93% of customers now making contact with the bank via phone calls, the internet, or smartphone”. In 2019, a record of 57 million people were known to be mobile banking users and it was estimated that 70% of millennials used mobile banking apps.
Even more so, the banking industry and the general use of FinTech for online banking has gone through dramatic growth spurts as the global Covid-19 pandemic continues to cause millions to stay home, self isolate, and social distance themselves. With the onset of the Coronavirus outbreak, people have become more dependent on digital banking and monitoring their finances using banking apps and automatic payments rather than physically going into their local bank. This ease in digital banking has been made possible due to banking app features that allow account holders to transfer funds, digitally cash checks, and automize payments through their mobile apps. For the foreseeable future, Americans ease of access to brick and mortar business will be restricted due to social distancing regulations, shortened business hours, and limits on the amount of people allowed in a business at certain times. As the pandemic continues and even once the curve flattens, it can be predicted that banking institutions will forever be changed. Rather than being used out of curiosity and innovation purposes, FinTech has suddenly become a tool of necessity. As the exposure to mobile banking becomes more of a regular thing amongst the general public, the need for brick and mortar banks will eventually lessen and lessen, rendering physical locations unnecessary as more people grow comfortable with idea of meeting their financial needs online. In the Harvard Business Review article about disruptive change in businesses, it was said that that a business is able to remain consistent through disruptive changes and adaptions by having strong values. One of their examples was McKinsey & Company, which regardless of how many people leave the company every year “the company is able to crank out high-quality work year after year because its core capabilities are rooted in its process and values rather than its resources.”
As banks resources become less dependent on physical locations and interactions with in person representatives, the main banks are still able to maintain their foothold on the financial market because of their adaptation of their values and core processes to the world of digital FinTech. Digital accountants, bankers, and financial advisors that are accessible by phone and direct messaging services will come to replace the friendly faces behind the desks. As most innovative technologies go, they completely revolutionize the industries until they have rendered the old way of doing things completely unnecessary. FinTech has the means to solve the problem of providing banking services to the estimated “2 billion people worldwide that do not have bank accounts”, and would be able to do so through just internet access and without the need for more brick-and-mortar locations. As of right now the banking industry is considered to be taking a hybrid approach, meaning that users do many of their smaller financial tasks on mobile applications, and go to the brick and mortar locations for bigger things. In order for the realm of FinTech to expand to that level, they must first tackle the problem of creating a means for users to complete their bigger banking needs, pertaining to deeds and wills, or the creation, closing and/or transferring of accounts through mobile applications.
Conclusion
Though there is still a long way to go until we get to that point of complete trust and use of FinTech and mobile applications, we are well on our way towards revolutionizing the financial industry and setting a new precedent. FinTech and mobile financing apps have already changed so much of how we operate within society and handle our money. From changing how our relationships with our peers to changing how the Government deals with the distribution of funds, payment apps have completely changed the dynamic of sending and receiving money and may have also set a new standard for public funding. Meanwhile budgeting and overall financial learning apps have changed how we deal with money personally, thus affecting how we pass down these money management skills to the following generations. The FinTech industry is not always consistent in its growth, seeing as the cryptocurrency market and the excitement surrounding it came and left quite quickly due to its negative connotations. However, other financial technologies like crowd funding services and mobile banking apps seem to be on a steady uprise, helping the likes of entrepreneurs, freelancers, and tradition workers. The growth of mobile banking apps have taken a hard toll out on the banking industry in some ways but have helped it to improve and be available to a wider range of people at the same time. It will be interesting to see how the industry progresses past and continues to expand. I do not think it is a far reach to say that the future will hold a full conversion to digital forms of currency and financing. The digital dollar is the future!
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