2021

Users and Non-User

Theory with Respect to
FinTech
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Table of Contents

Introduction .................................................................................................................................... 2

Current User Landscape .................................................................................................................. 3

Early vs Late Adopters.................................................................................................................... 4

User Adoption Theories .................................................................................................................. 5

Micro-finance in FinTech ............................................................................................................... 7

Future of Fintech ........................................................................................................................... 10

Conclusion .................................................................................................................................... 11

References .................................................................................Error! Bookmark not defined.12

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Introduction

User and non-user theory is largely governed by the behavioral demographics that surround

the consumers (Allen, 1990). This behavior is impacted by several elements; one of which

comprises of the user landscape with respect to the industry in the consumer region. Therefore, in

order to better understand the user and non-user theory that dictate the consumer behavior to make

the choice of adopting fin-tech and mobile banking services, it is important to understand the user

landscape of the fin-tech industry globally and then determine the behavioral elements that dictate

that behavior.

Current user landscape with respect to Fin-tech/ mobile banking apps

With the evolution of technology and the high mobile phone penetration across the globe,

the brick-and-mortar payment systems are becoming obsolete. The financial institutions that have

been operating for centuries tend to be more profit-centric than consumer-centric which has been

paving way for the disruption of fin-tech in the industry. The changing consumer interests coupled

with the scalability of fin-tech has allowed it to achieve many goals previously thought to be

impossible. Perhaps the most important amongst these would be the financial inclusion of the

under-banked and un-banked segments of the society to minimize the financial disparity gap

prevalent in the society at large.

Financial technology (or fin-tech) has now become a global phenomenon which is defined

differently by different financial experts. At its core, however, fin-tech is a portmanteau that

combines the fields of “finance” and “technology” to provide a consumer centric service to the

public (Ryu, n.d.). The growing name of this industry has passed through many evolutionary stages

with certain economic events driving its success. Times of economic recessions such as the
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financial crisis of 2007 led to wide-spread consumer dis-trust in the financial institutions and

provided a huge opportunity for fin-tech startups to step in and bridge that trust gap and provide a

service that prioritized its consumers’ interests. With time, these startups have achieved huge

success and the payment industry has evolved greatly in the past decade. In fact, 64% of the

consumers worldwide with access to banking services use fin-tech platforms as compared to 33%

just 2 years ago. Moreover, as compared to the traditional banking services and payment solutions

60% of the consumers today prefer to interact with the financial institutions entitled to a single

platform such as social media or mobile banking apps. 90% of the millennial segment also prefers

the use of fin-tech platforms as being more convenient and trust-worthy than the traditional

banking systems. The enhanced mobility and the ease of performing financial transactions has

revolutionized the banking process globally. It is estimated that in the year 2021, 90% of users

across the world will make a payment using their smart phones without suffering the hassle of

visiting their banks. By next year, it is projected that these mobile phone transactions would further

expand by a stooping 121% to entail 88% of the total banking transactions conducted.

Additionally, in 2022, consumer spending in an app store is projected to increase by 92% to $157

billion worldwide and approximately 78% of the millennial population in the United States would

have transformed into digital banking users entirely. These projections certainly show the path

cashless payment systems and fin-tech platforms are headed and by the end of 2021, it is estimated

that user payments via credit cards, debit cards and e-wallets will surpass the cash payments at all

point of sales (POS) locations (“Fin tech,” 2020).

There are several factors that have led to the evolution of this industry apart from consumer

convenience and trust. More importantly, these factors not only play a role in the maturity of the
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fin-tech industry but also shapes user behavior that classifies them as users or non-users of this

new technology. These factors can be broadly divided into 3 categories:

1- The evolution of technologies such as Artificial Intelligence (AI), cyber security and

block chain technology which have been the drivers for the growth of fin-tech platforms

are being accepted widely across the globe and the demand has been rising. In fact,

artificial intelligence is projected to increase the profitability of the fin-tech industry

exponentially in the upcoming years due to its effectiveness and high adoption rate.

2- Financial crisis of 2007-08 have let a lot companies to disrupt and are thus getting their

houses in order to return money to their investors.

3- The macroeconomic situation, particularly in the UK (one of the most advanced fin

tech markets), has deteriorated, slowing down funding to younger and newer

companies.

Apart from these economic and technological indicators, geography also plays a key role when it

comes to user-adoption of the financial technology services and platforms. With a primary focus

of many fin-tech platforms on financial inclusion; as witnessed with IBM’s partnership with Twiga

Foods in Kenya; the general consumer perception towards fin-tech is changing as they are slowly

becoming more aware of its functionality and effectiveness (“State of Fin tech,” n.d.).

Another key area which would help us understand the user and non-user perception about fin-tech

platforms and digital banking platforms is to differentiate between the behavioral characteristics

of the early and late adopters of this technology and the reasons that impact this decision making

process.
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Early vs Late Adopters of Fin-Tech

Despite the enormous adoption rates of fin-tech and the benefits associated with its use,

many consumers remain skeptical of the use of technology to govern their finances. The primary

source of skepticism for these consumers is driven by the considerable risks they associated with

the use of fin-tech services. The barriers to adoption primarily comprise of the negative impacts

associated with these risks across the spectrum of the fin-tech industry. For instance, in terms

financial technology; loss of financial outcome and extra fees discourage users from adopting the

change. In terms of a regulatory framework, legal uncertainty for adoption due to the relative

newness of the technology sometimes hinders adoption. Similarly, for security and privacy

concerns, vulnerability of security technologies and for operational aspects the use of inadequate

processes or systems of Fin tech companies fuel these concerns.

In order to make a choice between whether to become a user of the fin-tech service or stick

to their traditional systems, consumers try to make an informed choice by weighing their benefits

of adoption against the associated risks. It is this balance of scale which determines the adoptability

or rejection of fin-tech for users. Fin-tech platforms and banks offering digital services should

inspect these risks and work towards improving the benefits as compared to the risks. One

drawback associated with the consumer decision via this process, however, is making the choice

based on incomplete or imperfect information. This results in an added psychological barrier for

the users in their evaluation of decisions of the adoption of the technology. Fin-tech firms should

capitalize on the ‘perceived user benefits’ resulting from their use of the technology and raise

proper awareness to off-set any risks stemming off incorrect information to further boost the user

adoption rate.
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Another key driver of user adoption is determined by the characteristics of the users who have

already adopted it. The decision of early vs late adoption is fuelled by a person’s risk averseness

abilities. Consumers who are more risk-averse tend to be early adopters of fin-tech services as they

make an informed judgment that the perceived benefits would outweigh the risks involved. For

the consumers that adopt in the later part of the adoption cycle, another important characteristic

apart from the ones already discussed are the characteristics of the users themselves who have

adopted this technology in the earlier part of the cycle. For instance, if the user resonates with the

majority of the users already prevalent on the platform (financially and socially), he/she is more

likely to adopt the technology than the case in which a user does not find any common

characteristics between the prevailing users of the platform and himself (Ryu, n.d.).

After the adoption of the technology via proper channels, the most important concern for the fin-

tech platforms is user retention. Perhaps the most important factor that lead to the discontinuance

of a user’s fin-tech journey is the legal risks associated with the transactions. Contrary to this, for

the users that tend to use the platforms for a long span of time, convenience plays the most integral

role in keeping the users intact. Some of these factors may slightly differ between the early and

late adopter categories but the primary factors remain the same which classify consumers as users

or non-users (Ryu, 2018).

User Adoption Theories

There are several user and non-user theories that can be implied when it comes to the

adoption of fin-tech at large. The evolution of mobile banking and cashless systems follow several

frameworks of adoption amongst the consumer base and drives the success of these services.
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1. Diffusion of Innovation Theory

One such theory is called “the diffusion of innovation theory (DOI)” (Rogers, 2010). This

theory classifies the users based on their adoption status. These categories are:

a. Innovators

b. Early Adopters

c. Early Majority

d. Late Majority

e. Laggards

Different categories have different user characteristics that dictate a certain user-behavior.

La Morte (2018) identified 5 factors that played a crucial role in the adoption of a service.

These factors are also consistent with regards to the DOI. They comprise of complexity,

observability, compatibility, triability and relative advantage. Mallat (2007) conducted a

study based on these factors upon mobile phone users and deduced that the low acceptance

of mobile payments by merchants coupled with user perceptions relating to complexity and

risks involved were the dominant blocks in user adoption of mobile phones for payment

purposes. There have been other studies that used the DOI theory to study acceptance of

other personal finance technology, including Li, Lee, and Cude (2002), who investigated

the adoption of online trading. They concluded that risk tolerance was positively related,

and age was negatively related to the use of online trading (Li et al., 2019).

2. Technology acceptance model

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Yet another theory used to explain the user-adoption behavior is the Technology

Acceptance Model (TAM) that is further branched into 2 main categories:

a. Perceived Usefulness of Adoption

b. Perceived Ease of Use of Adoption

This model determines the ‘perceived benefits of the user’ by evaluating the

convenience and use of use offered. This theory also compliments earlier research and

its core principle to conclude that the abundance of risks minimize the user adoption

rates of the new technology and sufficient steps should be put in place to minimize the

drawbacks associated (Li et al., 2019)

Micro-finance Users Stemming from Fin-tech

Micro-lending is a subset of micro financing and refers to the provision of small loans to

the poor segment of the society to help them support their livelihood and that of their families.

These loans are primarily intended to support people in starting their own businesses or expanding

an existing one. At the end of the financial year 2019, a third world country such as Pakistan’s

microfinance industry displayed a 22.7% growth in its microcredit portfolio; reaching PKR 293.6

billion as compared to PKR 239.4 billion in the preceding period. The total number of borrowers

in the country also grew by 10.6% during the same period. Moreover, loan sizes have also

increased to an average of PKR 44,000 showing a rise in lending trend in Pakistan (Mohammad,

2010). Although this number may seem significant, many users have distrust towards the financial
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institutions due to the high-end corruption in the system and therefore the use of fin-tech streams

to make payment transparent (via the use of block chain) and convenient whilst allowing for

opportunities to eradicate the poverty gap. If viewed from the point of the borrower, certain

problems such as interest rates offered by formal MFIs, surface. Due to the high rates of the fixed

markup, the owners of the SMEs end up taking the variable rate in the hopes that it would fall in

the future (Hassan, n.d.). This process of borrowing loans has adversely impacted their capacity of

borrowing loans and has also instigated within them a sense of resentment towards the institutions

offering them such loans as it withers away all their prior savings. Another issue that the borrowers

thoroughly face is the proper access to information related to commercial financing services. Most

of the banks and semi-formal MFIs adopt a culture of secrecy and sometimes fail to reveal the

most basic information which is essential in grasping the trust of the borrowers in the institution

(Mohammad, 2010). These poor disclosure practices eventually causes more harm than good to

the other party. Above all, recovery methods upon failure to pay off the loan is a major problem.

Banks and other lending institutions sometimes tend to take matters into their own hands to ensure

repayments which lead them to cross some legal boundaries. This may include going over to the

person’s residence and threaten& pressurize them to recover the due payments or else be prepared

to suffer dreadful consequences. This practice further widens the gap of mis-trust between the two

parties. The absence of regulations which give the borrower protection in cases of commercial

financing services is another important issue faced by the borrowers. One such example would be

the lack of restrictions placed on banks to not charge high fees on depositing cash in one’s personal

account. In addition, users do not even have access to their personal information in the Credit

Worthiness Report issued by CIB (“CIB - Personnel Accounts Privacy Promise for Consumers,”

n.d.). Another key worry for the borrowers; particularly in the developing countries; is the variation
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in the range and quality of services being offered from MFIs which leaves a certain segment of the

society at a huge disadvantage as it fails to avail the best offer (Bank, n.d).This variation leaves

the already financially excluded segment wary of the standard of services being offered which

leads to their financial exclusion altogether. These problems are not limited to or subjected only

to Pakistan but is reflected in all the third world countries globally. The use of fin-tech platforms

to offer a standardized service at the convenience of the customer would help resolve these issues

and lead to a higher adoption rate amongst the customers.

Future of Fin Tech Industry

Different users use different mechanisms when it comes to the adoption of fin-tech and

digital banking services. No matter what end of the spectrum users adopt this technology, the

adoption rate has been booming and is expected to capture an even larger chunk of the financial

market in the years to come. Traditional brick and mortar bank structures are also affiliating with

fin-tech platforms or opening up their digital banking services; if they have not already due to the

enormous demand of the services even within their existing customer base. In fact, 82% of the

traditional financial organizations that have not yet digitally expanded their horizons plan to do so

in the coming 3-5 years window. 88% of the financial incumbents feel threatened to these new

digital platforms and are either responding to it by opening up their services in the domain or

affiliating with fin-tech platforms already offering such services. The transition to a consumer-

centric financial service provider has led to higher consumer demands with many customers

demanding a seamless digital experience with the handling of their funds. To match these

consumer expectations, many financial institutions have partnered with new fin-tech platforms to

cater to consumer needs because it is easier to implement change than build the technology to serve

customers from the group-up. The use of fin-tech expands across many industries including even
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insurance and wealth-tech (i.e management of stock portfolios) (“Fintech,” 2020). However, in its

essence, the development of fin-tech is predicated upon the high mobile phone penetration in what

were considered to be ‘back-ended’ economies previously. For instance, the mobile penetration

rates in India sparking to 60% of its population (2nd largest population in the world) and 75% in

Pakistan signifies the rapid growth in the number of users with online data packages making use

of mobile payment services (Jutla – Sundararajan, 2016). This adoption rate provides plenty of

opportunities for fintech in the form of new e-commerce platforms, digital wallets and payment

solutions (Varga, 2017).

Conclusion

After an analysis of the different user adoption theories that determines the classification

of a user as a fin-tech user or non-user, it is safe to conclude that the users’ choice largely depend

upon the analysis of ‘perceived benefits’ as compared to ‘perceived risks’. The ones that turn out

to be users to become a part of the growing fin-tech industry consider the former to be more

beneficial than the latter. As for the non-users, careful speculation and right sources of information

would convert them into users of a financial service which is going to replace the incumbent

financial institutions in the near future and re-shape & revolutionize the way we conduct

transactions all across the globe.

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References

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Fintech: Financial Technology Industry Stats for 2020 [WWW Document], 2020. . Tipalti. URL

https://tipalti.com/fintech-stats-for-2020/ (accessed 1.6.21).

Li, B., Hanna, S., Kim, K.T., 2019. Who Uses Mobile Payments: Fintech Potential in Users and Non-

Users. Journal of Financial Counseling and Planning 31. https://doi.org/10.1891/JFCP-18-00083

Ryu, H.-S., 2018. What makes users willing or hesitant to use Fintech?: The moderating effect of user

type. Industrial Management & Data Systems 118, 00–00. https://doi.org/10.1108/IMDS-07-2017-

0325

Ryu, H.-S., n.d. Understanding Benefit and Risk Framework of Fintech Adoption: Comparison of Early

Adopters and Late Adopters 10.

State of Fintech [WWW Document], n.d. . Toptal Finance Blog. URL

https://www.toptal.com/finance/market-research-analysts/fintech-landscape (accessed 1.6.21).

Varga, D., 2017. Fintech, the new era of financial services. Veztud 48, 22–32.

https://doi.org/10.14267/VEZTUD.2017.11.03

Wyatt, S., 2003. Non-users also matter: The construction of users and non-users of the Internet.
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