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Growing consumer demand for tech solutions is accelerating innovation in financial services – here's how

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Here are 5 ways fintechs are strengthening their influence in the financial services landscape...
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Disruptive upstarts and growing consumer demand for tech solutions are accelerating the pace of financial services innovation

The financial services industry is undergoing a rapid digital transformation to keep up with the expanding influence of Millennials and Generation Z. To meet this demographic’s expectations of efficiency and convenience, legacy financial institutions have had to either work alongside or fully acquire fintech startups — or risk ceding customers to them.

As a part of our Fintech coverage, Business Insider Intelligence has identified some of the most impactful trends reshaping the landscape.

Here are 5 ways fintechs are strengthening their influence in the financial services landscape:

Fintech Infograhic

1. Financial Inclusion

  • 33 million US households are underbanked, or entirely unbanked
  • By 2023, Business Insider Intelligence estimates that underserved consumers in the US will spend $230 billion to access financial services
  • Over half (53%) of self-reported households cite that not having enough money to keep in a bank account is the No. 1 reason for being unbanked

Fintech Infograhic

2. Funding, Megadeals, and Industry Consolidation

  • Four key factors are driving consolidation among incumbents: increased competition from startups, client demands for more services, pricing pressures, and low margins
  • Mergers and acquisitions deals spiked from $31.8 billion in the first half of 2018 to a total of $116.6 billion in the first half of 2019
  • By Q3 2018, fintech funding jumped 82% year-over-year, hitting $32.6 billion

Fintech Infograhic

3. The Rise of Banking-as-a-Service

  • BaaS platforms enable fintechs to connect with financial services providers' systems via APIs
  • 84% of commercial banks are considering partnering with fintechs — some partnerships will form via BaaS platforms
  • Fintechs can use a BaaS provider's digital banking API to build their own neobank, without having to develop their own underlying infrastructure

Fintech Infograhic

4. Alternative Lending

  • Fintechs are capturing an increasingly large sliver of the SMB lending market: the percentage of alternative finance will rise to a 9.1% of the UK market share, worth $67.4 billion by 2021
  • Globally, there's a funding gap of $5 trillion between the financing needs of SMBs and the institution-based financing available to them
  • To quickly incorporate new AI and tech solutions, incumbents are partnering with alt lenders; 57% of banks would consider exploring a referral model to third parties for SMB lending

Fintech Infograhic

5. Regulatory Changes

  • The FCA and Competition and Markets Authority introduced Open Banking regulations in the beginning of 2018, requiring financial institutions to make customer data available to third-party providers
  • The EU passed the Revised Payment Services Directive 2 (PSD2), requiring FIs to open up their payment infrastructure and data held on customers to third parties
  • In Australia, the government decided to require major banks to make customer-permitted credit and debit card data available to third parties by July 2019

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