The Impact Of Fintech Savings Solutions On The Retail Investing Landscape As interest rates continue to climb, traditional banks will face an uphill battle in keeping pace with the advantages offered by fintech solutions.

By Mark Chahwan

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Current retail investor behavior is telling an interesting story: many people are shifting their funds away from conventional savings accounts and towards fintech savings solutions. But what does this mean exactly?  

Well, in Q1 of 2023, Sarwa, a personal finance app that I lead as CEO, saw its monthly deposits and trade volume increase by over 260% in just 3 months, driven mainly by Sarwa Save, a high-yield cash account product that we recently launched. Global statistics are reflecting similarly, indicating that other fintech or neobank companies are experiencing a comparable phenomenon, with some reporting an approximate 200% increase in deposits since rivalling bank interest rates, according to AltFi. 

It's true that the fintech industry has been leveraging technology for years to make financial solutions more accessible to the average individual, but now more than ever, fintech companies are offering more rewarding alternatives than those being offered by your typical brick-and-mortar bank, simply because they're adapting to the macroeconomic climate quicker. 

With inflation being the main global economic challenge in 2022, central banks have responded aggressively. The Federal Reserve, the European Central Bank, and the Bank of England have raised interest rates significantly, with projections to continue raising interest rates through 2023, in a bid to get a handle on rising inflation. Increasing interest rates typically mean higher interest on savings.

Related: Focused On The Future: Mohammed Alblooshi, Head Of DIFC Innovation Hub And FinTech Hive

And regional banks are definitely feeling this pressure too- but they are failing to adapt. As a result, retail investors have grown tired of the low interest on their cash from banks here, and they are naturally moving into the arms of more risk-averse and liquid instruments like high-yield cash accounts.

Savings options particularly provided by fintech companies are becoming increasingly attractive, as most banks in the Emirates struggle to share higher interest rates benefits. Banks are still providing customers with low savings yields, despite the fact that the cost of borrowing has increased with the rate hikes.

Additionally, many local bank requirements like minimum salary statements and minimum balance conditions create extra hurdles that make these accounts inaccessible. According to research, the average yield on bank savings accounts in the UAE is approximately 1% at best- some with minimum balance requirements of AED10,000. With fintech offering no such hurdles and offering sometimes two or three times the average UAE bank interest rate, investors are expecting more options for less- meaning no minimum balances, no management fees, and no extra hurdles.

The impact of fintech savings solutions on the retail investing landscape has been nothing short of transformative. So, as interest rates continue to climb, traditional banks will face an uphill battle in keeping pace with the advantages offered by fintech solutions. Ultimately, it's clear that the fintech industry is driving innovation, while enhancing financial inclusion and access to superior savings options for consumers. But as we ride this wave of change, we must ask ourselves: what happens when interest rates slow? Will traditional banks adapt in the near future? And what else will fintech companies bring to the table?

The takeaway from all of this: you need to keep your eyes glued to this space!

Related: Five Predictions For Fintech In 2023

Mark Chahwan

Co-founder and CEO, Sarwa

Mark Chahwan is the co-founder and CEO of Sarwa, a financial platform and app that lets you easily trade stocks and exchange-traded funds, buy and sell cryptocurrencies, and invest your money passively, all in one place.  

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