30 Mar

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Innovation

Growth of Fintechs in North America

Written By Les Armour

Financial technology companies (fintechs) stepped up innovation during COVID. This new breed of challengers to financial services is emerging to disrupt the payments industry. From non-banks and neobanks to tech companies and cryptocurrency platforms, these new fintechs are competing with traditional financial institutions. What began in Europe has seen a surge in other parts of the globe as well. The demand was propelled by COVID as stay-at-home orders globally fueled these upstarts, spawning more efficient payment platforms and allowing a full range of banking services. As a result, a number of fintechs have broadened their reach  and can be seen investing heavily to enter the North American market, especially the U.S.

Overcoming Challenges

North America is commonly the leader in most financial developments; however, fintechs have had a harder time cutting through the noise in this highly competitive market. The strong grasp many big financial institutions have dominates this more mature market. A whitepaper recently commissioned by the Aite Group pointed out the inherent challenges fintechs must overcome to be successful, including:

• Building trust
• Competing customer attention
• Developing the right brand and product positioning
• Overcoming regulatory hurdles
• Selling products without a branch network

The Battleground 

The closure of physical bank branches across the U.S. creates an opportunity for fintechs. By pushing consumers out of their comfort zone toward banking through their mobile phones, they are reevaluating the value and need for a physical financial location. Digital banks are growing quickly in the U.S. due to the pandemic, which is concerning to traditional financial institutions. One way this battle is playing out is through acquisitions. Despite a few failed attempts, many larger financial institutions, such as Bank of America, are investing heavily in digital for the future. Others, like JP Morgan’s venture in the U.K., are starting their own digital banks in select regions.  Fintechs also are partnering with financial institutions to share banking licenses and build collaborations.

Fintechs had to get creative in how they compete against more established financial institutions and stand out in the crowded marketplace. They are creating user experiences that are better and easier with mobile apps and online customer service. Fintechs are developing directed incentives that lure customers, including robust rewards programs, no-fee programs and premium cards that use metal materials and advanced designs. Bigger brands typically only offer metal cards to their elite customers, while fintechs expand the experience to all customers, including pre-paid cards in sophisticated metal material to differentiate themselves. 

Experiencing the Metal Card Difference

People  still like the feel and use of a card, even as they adapt to online and mobile banking. The increased use of metal payment cards to attract customers is not a surprising tactic. In fact, Aite Group’s whitepaper also breaks down the ROI of offering a metal card to customers. The benefits of metal cards far outweigh the cost associated with them. This has been one of the keys to the success of fintechs as they continue to expand their reach throughout North America. It is proven that metal cards increase account acquisition, card activation, transaction revenue, cardholder retention and additional fee income. Cards, in general, are the billboard for any brand and in many cases, the only physical connection a customer has with the bank. 

There are many examples of fintechs leveraging the issuance of a metal payment card to build their brand, grow customers quickly and disrupt the financial market. Greenwood, Blockfi, and X1 are all examples of fintech banks launching with waitlists and marketing a metal card to draw publicity. Koho and Chime have offered upgrades to metal cards when you refer friends. According to the whitepaper, half of consumers worldwide would leave their existing bank for another if it offers a metal payment card as part of their rewards and loyality benefits. As the competition for brand loyalty heats up, one of the most effective weapons that financial institutions have in their arsenal is the metal card.  

For more information on best practices of common fintech challenges and an overview of metal card issuance, please download the full report of Aite Group commissioned by CompoSecure L.L.C. “A Competitive Edge for Fintech Issuers.”

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