Technology has transformed consumer behavior and business practices in many ways over the past decade. One segment, easily overlooked, is how much technology has changed the financial sector.
Fintech, short for financial technology, is the act of using technology to better accomplish traditional financial tasks, usually by making them cheaper, safer, and more convenient. While it is well beyond the scope of this article to explore every single advancement this sector realized in the 2010s, I believe it can help investors to take a moment to look back and recognize how far the industry has come in a relatively short time.
With that in mind, let's look at how the finance industry has gotten cheaper, more convenient, and safer by leveraging technology.
Finance is more affordable than ever before
Investing has never been cheaper. Over the past decade, investors have participated in low-cost index funds and ETFs more than ever before, with the two asset classes now more popular than actively managed funds. The migration from active to passive funds has saved investors billions of dollars in expenses and shows no sign of slowing down. Indeed, Morningstar found that investors paid less to own funds in 2018 than ever before, with the second-largest year-over-year decline since 2000. In 2018, investors paid an average of 0.48% as an expense ratio to own funds, saving $5.5 billion over what they paid in expense fees in 2017. Also, in 2018, low-cost index funds reached their apex, and logical conclusion, when Fidelity introduced zero-fee index funds, costing investors nothing to own.
Commission fees for buying and selling securities also dropped precipitously in the 2010s. Robinhood, an app-only brokerage, was founded in 2013 and launched in 2015 with $0 commission fees and no account minimums with the expressed mission to "provide everyone with access to the financial markets, not just the wealthy." While commission fees did creep down, no large effect was seen until 2019, when the dominoes really began to fall.
Early in the year, Square's (NYSE:SQ) popular Cash App introduced commission-free trading on bitcoin and stocks. In September, Interactive Brokers Group (NASDAQ:IBKR) introduced a platform allowing unlimited trades with no commission fees, and by early October, Charles Schwab (NYSE:SCHW) had reduced its commission fees to $0. Within days, nearly every other major brokerage followed suit, effectively reducing the price to buy and sell stocks for U.S. investors to zero.
Finance is more convenient than ever before
In the first decade of this millennium, financial activities migrated to the digital world, and in this current decade, the migration advanced to the mobile age. PayPal Holdings' (NASDAQ:PYPL) One Touch enables users to buy products and services on mobile devices seamlessly, with just the click of a button, on a pre-registered device. The service now has 172 million consumers and 13.8 million merchants registered with it . Banking apps that allows users to do everything from depositing checks to paying bills are commonplace.
By now, nearly all financial transactions can be performed on a mobile device; it's just a matter of consumers adopting these new methods. For example, that most complicated of financial processes, the mortgage, has already been bundled into an app, and that app's solution might be the best in the industry.
With the Quicken Loans' Rocket Mortgage app, consumers can electronically sign their entire mortgage application, see a full to-do list of what needs to be done before the mortgage is approved, and message customer service representatives directly whenever they have a question. After the mortgage is finalized, consumers can set up automatic payment options through the app, receive push notifications to their mobile phone when a payment is coming due, and access their loan documents at any time. Since 2010, Quicken Loans has received 13 J.D. Power awards for customer satisfaction in the mortgage origination and mortgage servicing categories.
Rocket Mortgage's success in this arena illustrates that there is (1) No financial process too complicated to be handled on a mobile phone; and (2) Mobile payment solutions can lead to greater convenience for the end-user, leading directly to higher customer satisfaction.
Finance is safer than ever before
As the war on cash has waged on, electronic and digital payments have continued to get safer. EMV chips, though admittedly discovered well before the 2010s, was only implemented in the second half of the 2010s in the U.S. but, in just a few short years, counterfeit credit card fraud dropped by 76% in the U.S.
As important as EMV chips are to secure payments, an even bigger breakthrough was made this past decade. Cryptocurrencies, many powered by blockchain technology, will probably prove to be the bigger story. Bitcoin, by far the most popular cryptocurrency, can be used to make private payments to other individuals or entities without exposing personal information to third parties, such as banks, or interfering government powers. Because all bitcoin transactions are recorded on the blockchain, a digital and decentralized ledger, there is no data that can be breached or center depository that can be hacked.
Going forward, we have every reason to expect financial activities to continue to become more affordable, more convenient, and more secure over time. And if the industry's legacy players aren't willing to invest to provide customers with better and cheaper services, they will continue to feel the competitive pressures from disruptive upstarts.
The result of cheaper, more convenient, and safer transactions is that our financial institutions are more accessible than ever before. Globally, 69% of the population now have bank accounts, up from 51% in 2011, according to the World Bank. Over the next decade, I believe this trend will not only continue but accelerate, as more global consumers have access to technology, such as smartphones and a wireless signal, that will grant them access to the world's economy and financial infrastructure.