Banks may soon be a thing of the past, as technology-driven finance solutions (services that manage, invest, and even create new forms of currency) are gaining popularity among U.S. consumers.
More than half (53 percent) of Americans are considering jumping ship to financial tech providers, according to a new study from TransferWise, a peer-to-peer money transfer service.
55 percent considered them to be just as or more secure than banks. Specifically, 9 percent planned to adopt automated service for mortgages, 11 percent for loans, and 6 percent for wealth management, the data from TransferWise showed.
The London, U.K.-based company has raised $91 million in venture capital funding, from such A-list investors as Andreessen Horowitz and Richard Branson, for a $1 billion valuation. TransferWise expanded into the U.S. one year ago. The startup considers this to be its most promising market.
The study surveyed 9,230 adults (about 1,000 of whom were from the U.S.), and over 2,000 from the U.K. TransferWise gathered data from its own customers, as well as from YouGov consumer research.
"In five years' time, some parts of the sector will be almost universally controlled by non-banks. Other parts will be a mix. The most important result will be the true democratization of finance," said TransferWise's co-founder and CEO, Taavet Hinrikus.
It's not too surprising that fintech companies like TransferWise, which says it saves users $1 million in transfers every day, are growing at a rapid rate. These services are often cheaper than banks; TransferWise charges a flat fee of 0.7 percent on a U.S. transfer, compared to the more standard 3 to 6 percent.
Still, there are potential drawbacks of financial technology solutions, especially considering that just 16 percent of the surveyed Americans said they currently don't trust their banks.
One concern is that startups (automated investment platforms, specifically) lack the human touch. Another is that such companies, while glossy, typically require a large amount of capital to operate. Experts are skeptical that they could truly become (and remain) profitable in the long run.
"We have to distinguish between what people say they would consider with what they will actually do," adds Derek Frost, a principal executive advisor at CEB. "It remains to be seen how effective fintechs will be at delivering specific services at the retail level--and whether they will offer such services directly or (and this is more likely) in partnership with or as a part of traditional banks."
Although TransferWise hasn't reached profitability, co-founder Kristo Käärman insists that it's because of their chosen focus on global expansion.
"We're not profitable today, but we don't have to be. We can invest in growth," he said. "If we wanted to, we could have been profitable a year ago, easily."