by Rob Joseph, Director, BeaconCFO Plus
Many of us once saved our change in piggy banks. In school, we learned how to balance a checkbook and write a check. We visited a brick-and-mortar bank to deposit our paychecks. The first time we saw a credit card with our name on it was a big deal.
How in awe would your past self be of the technology that exists in 2021? We can complete an order from Amazon in one click and the item is delivered to our doorstep hours later. Instead of opening our wallets to pay for coffee at Starbucks, we can hold up our phones to scan a QR code. If our friend covers the bill at a restaurant, we can Venmo them money in reimbursement while we are still sitting in our chair.
Cash App, Venmo, Zelle—these names probably didn’t mean much to you a few years ago, but now they are part of our everyday life. This rapid-fire wave of new financial technology is changing the way we do our personal and professional business.
Cathie Woods, the founder and CEO of ARK Invest, presented on disruptive innovation in 2019 at the Exponential Finance Summit. You can watch her full presentation—which I highly recommend—but I’d like to draw from the portion of her talk regarding financial technology, often referred to as “Fintech.” Cathie cites several examples that help to illustrate the disruption of new financial services and why businesses should take note.
The Rise of Alipay in China
In 2011, a wallet-based payment app called Alipay took China by storm. China’s mobile payment volume went from $0.9 trillion in 2014 to $26 trillion in 2018—exponential growth in a period of just 4 years. This is particularly interesting due to the number of residents in China that are unbanked. In 2017, 1.7 billion adults globally had no access to banking services, but two-thirds of these unbanked individuals owned a mobile phone. Mobile-app technology gives them banking capabilities without requiring any ties to a financial institution—it is a bank in their pocket.
The Popularity of PayPal’s Venmo and Square’s Cash App
The power of new Fintech is that it adds value to economic activities beyond what is measured by Gross Domestic Product (GDP) totals. For example, social payment services like Venmo—a digital wallet that allows people to make and share payments—make peer-to-peer transfers of funds, tipping, and gifting money very simple. In 2019, as Cathie notes, 42 percent of millennials had a Venmo account compared to 6 percent of people aged 55 to 64, but older adults are catching on quickly. This technology provides better, cheaper, and faster alternatives to traditional financial services, and it is here to stay. If you need evidence of that: Venmo’s payment volume for 2020 was $102 billion, and they ended the year with 52 million active users.
The Value of App-Based Financial Services
Digital wallet apps are edging out traditional banks in the total number of digital customers. According to data from ARK Invest used in Cathie’s presentation, in 2019, Venmo had the second-highest volume of digital customers in the United States—second only to J. P. Morgan Chase. At the time, Cash App was in the number six spot. Why are these non-traditional, app-based wallets so popular? These are just a few of the benefits:
- Peer-to-peer money transfers (as opposed to checks and wires)
- Instant and personalized credit assessments
- Tailored insurance offerings
- Personal finance management
- Investment support services
- Easy integration with other wealth management platforms
- Quick movement of money into savings
What This Means for You
CFO Advisory Services Help You Embrace Financial Innovation
Investment firms, real estate businesses, insurance companies, and others in the financial services industry must be part of this change or be left behind. Today’s consumers demand direct and seamless payment technology, agile platforms, and high levels of personalization. They are less concerned with the reputation of a brick-and-mortar banking institution and more concerned with ease of use, simplicity, and function.
How will your business embrace these new financial services? The CFOs at BeaconCFO Plus can help you navigate this technology, keep your business at the forefront of innovation, and stay relevant to your clients. Reach out to learn more about our outsourced CFO services.