Why U.S. consumers are less willing to embrace fintechs

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When it comes to consuming fintech, Americans are lagging far behind the rest of the world.

A new study by EY of global fintech adoption finds that consumer use in the U.S. is at 46%, well below the global average of 64%. China and India both lead the world for adoption at 87%, followed by Russia and South Africa at 82% and Colombia at 76% to round out the top five countries. The U.S. finished in the bottom four of 27 markets, ahead of Belgium and Luxembourg (42%), France (35%) and Japan (34%).

The lack of a regulated open banking model combined with the absence of utility apps such as Alipay and WeChat Pay could be reasons why U.S. consumers shy away from using consumer-facing fintech services, according to observers.

“In many jurisdictions globally, there’s been a lot of push from governments or the industry in general to advance open banking standards and capabilities,” Matthew Hatch, a partner at EY and an Americas fintech leader, said in an interview. “When that push from the industry happens more in the U.S., I think you’ll see a lot more consumer adoption as banks work more closely with fintechs."

In general, trust remains an issue with global consumers when adopting fintech, especially when new technology is presented by a startup instead of a traditional financial institution. Some 22% of consumers worldwide that consider themselves nonadopters have a greater level of trust with incumbent financial institutions than what EY called fintech challengers.

The fear of a data breach might also be preventing consumers from fully embracing fintechs.

“There’s certainly a sensitivity over typing in your personal information into an app,” said Mike McCrary, the executive vice president of e-commerce and emerging technology at the $1.2 billion-asset Lincoln Savings Bank in Cedar Falls, Iowa. “That requires a degree of trust, and the whole idea of data breaches is just so prevalent. Nobody is hardly even surprised anymore when they happen.”

McCrary said that fintechs, and even traditional banks, can gain trust on the mobile side by simply explaining to consumers the technology that is used to verify an ID. “That technology has certainly improved over time,” he said.

Hatch said consumers’ faith in traditional banks potentially puts those institutions in a better position to introduce new technological services and features.

“The banks are in a really interesting position to leverage those strengths in terms of their customer base and the trust, but be responsive to the changing customer needs as it relates to the transparency and different models for how they monetize the banking relationship,” he said.

Money transfer and payments saw the highest fintech adoption rates among consumers worldwide for the third analysis in a row, at 75%, compared with 50% in 2017 and 18% in 2015. Hatch credited the category’s popularity to fintechs' efforts to make such transactions “invisible.”

“Consumers are paying for something just by walking out of the store or by getting out of the car or just leaving the restaurant,” he said. “Those experiences are a huge focus of many industries that are serving consumers directly.”

Insurance-oriented fintech finished second on the list at 48%, compared with 24% in 2017 and only 8% in 2015.

Savings and investments finished third at 34%, versus 20% in 2017 and 17% in 2015.

McCrary, whose Lincoln Bank has partnerships with Acorns and MoneyLion to provide a debit card and checking account, said he was “pleasantly surprised” that consumers are embracing savings and investments.

“Maybe this is indicating that the messaging behind those kind of apps is being heard,” he said. “And I think with some of the technology, like Qapital on the savings side, they make it interesting and fun and gamify it.”

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