Fintech claims 88% of US consumers versus 95% by traditional banking: new Plaid report

As we edge towards 2022, fintech has become central to 88% of American consumers’ financial lives, according to the latest survey from Plaid and Harris Poll. The 52% year-on-year growth from 2020 to 2021 brought fintech adoption closer to traditional banking territory, which claims 95% of American consumers. The fintech boom is well and truly underway.

The Fintech Effect collected data from an online survey that reached 2000 adults in the US, and as many in the UK. The survey maps out the adoption of fintech, studying the landscape across different demographics to understand the benefit and value it brings for users.

The report argues that fintech’s unique value propositions are powering the move to digital banking, with an increase in adoption across age groups. The pandemic saw users adopt fintech services to replace or complement traditional banking actions. Popular fintech uses included saving and investing services, with apps like Robinhood and Current, payments services, with apps like Stripe and Revolut, and credit services, with apps like Klarna and Upstart. In fact, Plaid reported that 69% of people said fintech was a pandemic lifeline. The proportion of fintech users using their financial apps daily rose 11 percentage points, from 37% pre-pandemic to 48% today.

There was a concern, however, that the world going back to normal would undo some of these changes in behavior. The report tries to settle this fear, finding that, across all use cases, between 80% and 90% of those who used fintech in the past year plan to use it the same amount or more going forward. And 58% of the respondents still said they can’t live without using technology to manage their finances.

While millennials have the highest fintech adoption rate at 95%, boomers showed the highest growth in fintech adoption over the past year at 40%, taking their adoption rate to 79%. Gen X numbers grew at a rate of 27%, as 89% of that demographic now use fintech. As Gen Z comes of age, they aren’t staying far from the action, with their adoption growing by 22 percentage points to reach an 87% adoption rate. These numbers show the effectiveness of fintech to not only appeal to different age groups, with their own unique demands and financial habits, but also its ability to be customized for specific, niche uses.

The report also argues that fintech helps improve overall financial well-being, finding that 7 in 10 consumers said they feel more confident about their finances the more they use fintech. 93% of the respondents said fintech services help them save time and 78% said it helped them save money. Those two, however, are not the top benefits consumers seek from fintech services. When asked to rank their top three benefits, people ranked ease of tracking finances (82%), more control over their money (81%), and more choices (79%), than about saving time (60%), and money (45%).

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Fintech is helping people achieve their goals, says the report. Consumers found fintech solutions to save and invest cheaper and more accessible than those offered by traditional banking. In fact, savings and investing saw the largest year-over-year increase in digital use, as adoption of digital savings tools rose 11 percentage points to 57% of all Americans, and investing rose 8 percentage points to 51%. And four in ten of the respondents in the US said they used these digital services because they saved time and costs, like bank fees, overdrafts, and account minimums.

Fintech has demonstrated its ability to improve financial inclusivity and reach communities that are underbanked or at the fringes of the traditional banking system. In the US, some 88% of Hispanic people are banked, while among those surveyed, 95% reported using technology to manage their finances.

Minority communities were found to be more sensitive to fees: 20% of Black people and 31% of Hispanic people said financial fees concern them the most versus 15% of White people. In fintech, low or no-cost accounts are common practice, so respondents in minority communities found they served them better. Fintech services that allow users early access to their earned wages also gained popularity in this sphere.

Plaid is working on earning the center stage in this world of digital finance. The open finance firm claims its services power hundreds of millions of people across North America and Europe to connect their bank accounts to fintech applications.

Plaid has announced expanding its fintech network by entering new partnerships with Aspiration, Card.com, Chime, Dave, Empower, Green Dot, Lili, MoneyLion, NorthOne, One, Oxygen, Robinhood, SoFi, Stash, and Step.

Plaid also announced building new tools to its open finance network, the Plaid Exchange, to make onboarding and usage easier. The new tools include an implementation guide in the firm's resource hub and a way to test the integration process.

Last month, Plaid unveiled a new digital account-to-account payments program via ACH. The program enables third-party processors to move money directly from a consumer’s bank account to the merchant’s, going through Plaid’s authentication gateway and data provider APIs.

In January 2020, Plaid was on the verge of a $5.3 billion acquisition by payments giant Visa, but the deal fell through after the Department of Justice filed an antitrust lawsuit, alleging that Visa is monopolistic in processing online payments, and Plaid was developing a payment system that would compete with them. The DOJ believed “the transaction would have enabled Visa to eliminate this competitive threat to its online debit business before Plaid had a chance to succeed, thereby enhancing or maintaining its monopoly.” The acquisition was called off in January 2021.