What is the democratization of financial services - and how fintechs are pushing towards it

democratization of financial services

Up until ten years ago, the mid-2010s and a bit earlier, financial services were incredibly insular. It was an elite all-members group that could only be accessed by a few.

If you wanted to trade in the market, you needed a broker — and in many cases, it was up to the person, or business, if they accepted you.

In most cases, you had to audition for a service you were ultimately paying for. The same for many other types of financial services.

Today, the tables have flipped.

Fintechs are giving ordinary folks complete priority access to services they didn’t even know existed. Services that are essential to a person’s financial growth and possible independence.

In this article, we’re going to delve deep into the idea of the democratization of financial services. What is it? And the characteristics and products it brought to the table.

What is the democratization of financial services?

Democratization of financial services centers itself around the objective of providing ALL customer access to ALL financial services available in the present. The main issue, a couple of years ago, regarding this topic - and its impossibility - was cost. It was incredibly costly to provide customers with key financial services.

For example, if you need to purchase insurance or a retirement account, the only way you could achieve it was by getting in touch with an agent.

That agent would have to apply for the policy manually, which in turn would mean they were forced to jump through thousands of hoops - checking credentials, doctor’s recommendation, financial records, history, etc. All of that meant time, which translates into money. As such, agents would prioritize wealthy people or folks that were a “done deal."

Today, the cost reduction of most services, thanks to automation and tech, has all but buried that old business model. Current financial institutions leverage technology to offer all their services - once limited to a few - to all their customers.

Fintechs are essentially replacing the work performed once by humans with technology — lowering the cost of tools and extending them to all segments of the public.

Benefits of the democratization of financial services

Today, not only Fintechs but most traditional - legendary brands for that matter - banking services are jumping on the automation bandwagon. Classic banking, embedded in long-established roots and practices, has had no other choice but to adapt to today’s trends — otherwise, they risk losing a large part of their customer base.

What was once a paper price, complex, with thousands of man-hours, human effort, and difficult tasks can now be reduced to a click.

Some of the benefits include:

Lower costs

Not only for the banks that have now added to their DNA competitive automation services, but the customers. In most cases, the client no longer has to pay percentage points or fees when it comes to financial services. Brokerages, for example, are free.

Technology Supremacy

Technology supremacy means that clients have more trust in allowing machines, and algorithms, to dictate their financial decision than humans. Most humans make mistakes, they are driven by their biases — or their evil intent. Tech systems exclude humans and their ill or good intentions.

Not only that but a machine is not afraid of fatigue, it doesn’t entertain emotional problems, it isn’t plagued by human sentiments. It simply performs tasks in an objective, efficient manner.

More access

Today, folks have more access to all types of financial services thanks to the democratization of it. They are no longer excluded from most of them due to a tech barrier or a wealth barrier. Back in the mid-2010, an advisor or broker required, for example, minimum investment capital to take you as a client.

You needed to demonstrate you had the funds. Today, you can sign up to robs-advisors or only brokers like Robinhood with no money and start trading with pennies.

More products

Today, you also have instant access to all manner of products — in most cases right from the same platform. For example, banks now offer online -real-time trading, access to insurance, and IRAs. They also offer free consulting and professionals willing to take under your wing your brokerage account.

Other services give you access to international markets, not just regional ones. Still, others permit you to invest in cryptocurrencies.

A free market

A free market, spearheaded by aggressive competition, breeds better products. Today’s financial whirlwind isn’t just propelled by a current financial institution by a growing tech start-up community. This translates to them being caught up in an innovative dilemma — one where they either adapt to new services, new tools, new consumer habits, or face the risk of losing their loyal customer base.

Products offered by the democratization of financial services

Building their services on a digital cloud-based process means fintechs can easily scale and serve thousands or even millions of customers. Offer them great tools at a small marginal cost. Allowing folks to have more control over their financial independence.

Amongst the many services offered by the democratization of financial services we can find:

  • Self and autonomous trading.
  • Easy to access insurance products.
  • Retirement accounts.
  • Investment consultancy.
  • Access to more assets — including commodities and cryptocurrencies.
  • Access to basic financial services.
  • Access to credit cards and debit cards.
  • Improve FICO scores thanks to better management on the user’s part.
  • Efficient analytics regarding personal finances.

And these are just some of the services such a paradigm shift brings to the forefront of today’s finances.