Leaps in technology: Why the use of FinTech is lagging behind in rich countries
16 Aug 2017
Germany, the USA, Canada and Switzerland: all of them rich countries as well as being global leaders, financially and technologically. However, in one particular area, the world’s big players are lagging behind: FinTech services are used considerably less frequently here than in emerging countries. But why is this so – and is it a problem?
What is FinTech?
A short introduction for all those who are unfamiliar with the term itself: FinTech companies have focused on the provision of classic financial services with simultaneous use of modern technology. The background to this development is the fact that transfers, for example, seem to take for ever (in reality: one to two days), whereas the transfer of funds via internet services takes practically seconds. Do you want to finance a start-up? If that is the case, you use a crowdlending service instead of banks which take rather a long time to provide you with a loan and do so only subject to special conditions.
So basically, FinTech companies want to make the most of the traditional business of banks, but without the burdens of the past they have been carrying for decades or even centuries.
Newly industrialised countries benefit
Particularly in states where one would not immediately expect it, FinTech companies are received with open arms. In China, India, Mexico and Brazil, for example, they enjoy significantly higher popularity ratings among the general public. In Germany, 35% have taken advantage of the services of FinTech companies within the past six months (slightly more than in the United States and Switzerland). In India it was 52%, China is far in advance with 69%.
But why is this so? Should not we, the „models“ of the western world, be at the forefront?
We make it difficult for ourselves
Perhaps our countries are simply satiated with amenities and sitting comfortably. Banks and credit cards still dominate the field, FinTech has a market share of less than 1 %. An example from the well-known Swiss company Swatch illustrates the reasons behind this: The manufacturer offers a smart watch that also provides contactless payment via NFC technology. In the producer country itself (and also in Germany), watch and Swatch Pay services are not available on the market. Instead, the technology is made available in China.
A simple explanation is that newly industrialised countries are under pressure to act: they are lagging behind and are therefore compelled to invest in the future so as not to be outrun by the rich countries of the world. At the same time, we are far less motivated – the current system works, so why change anything?
Technology in everyday life
The technical affinity of the „new“ countries is closely related to their decisive support of the mobile internet boom in smartphones and tablets. In October 2016, the level of the mobile internet use exceeded that of stationary use on a desktop PC or notebook at home for the first time. But it was not Germany, the USA & Co., but Brazil, India and similar countries who played the decisive role. There, you grow up not with PCs and notebooks, but with mobile phones and tablets. The fact that knowledge of this technology already exists also promotes the rise of FinTech companies: from the outset, they are able to gear their services for use via smartphones, tablets and wearables.
Equally crucial: in this country, the vast majority of people have a classic bank account. In the newly industrialised and developing countries this is not the case. FinTech services are therefore often the only method of performing classic bank transactions without a classic bank account.
It’s very simple: just change a few habits!
In theory, it would be no big deal for us to accept FinTech as standard and say goodbye to outdated bank models in this country as well. The technology and infrastructure are available. But, we are essentially creatures of habit, who tend to manage, optimise and, with the help of the (technology) press, squeeze out existing technologies like a lemon. Abroad, we tend to be laughed at for our rigorous adherence to EC cards and cash. It will not be easy to persuade people (or society as a whole) to change tack and update to more modern, faster and often cheaper and more flexible models.
Should all this now give us cause for concern? Not necessarily: leaders in technology being overtaken at some point and then finding the necessary vigour to invest in new technology, has been a recurring cycle for thousands of years. So, hang on to your good old bank account a little longer.