How Fintechs are disrupting tax reporting services

In discussions around fintechs, we often discuss various financial services but taxation is often left out of the conversation. While the benefits of fintechs that cover the unbanked are unanimously considered a positive development in the financial field, there’s also the side of fintechs that is threatening to disrupt the current tax reporting services and possibly put them out of business as well. The same goes for any “traditional” or “outdated” financial service provider. Tax filing is an obligation that can not be avoided and most people even pay professionals to do their taxes for them to avoid any misunderstandings with the government. But with fintech becoming a dominant medium for dealing with finances this whole dynamic might be on the brink of changing. 

Fintechs might change the way people do taxes 

As of right now, there is a clear cut way that people do taxes. They track their spending and when it's tax season they either do all the work themselves or they hire a professional to do it for them, to eliminate the possibility of filing something incorrectly and then getting money deducted from your tax return. But ever since fintech came along, the financial industry just hasn’t been the same. And while it’s true the fintechs have been around for far longer than the last two years, it was in this time period when fintech became mainstream and people started believing in them as a viable financial option. It was during those last two years that the fintech industry really took off and started to become an essential part of people’s everyday lives but also a no-brainer for all businesses who want to stay technologically relevant. Fintechs have transformed entire industries and the way we see financial service in general. Our standard for these services have changed and for the better. With fintechs easy to access and cheap to use services, they are a fierce competition even for banks that have been around for almost a century now. It is clear that while so many fintechs alone won’t be able to compete with one single bank, the industry, in general, is quite capable of putting more traditional financial institutions out of business in a matter of years. But since nobody is ready for this fast of a transformation, nor are the fintechs ready to take all the responsibility and shift their methods to fit the needs of the different demographics, this conversation is moving along slowly. But ironically enough the challenges that are facing banks and tax reporting services can be boiled down to the similar problem that they are not ready to shift in a way that would be the most suitable for the customers since most of them dont want to deal with massive changes and waste their time if the services are working fine as they are. 

Can tax reporting services stay relevant?

Tax return services have functioned for decades offering these services to people but the industry that they are working in is changing drastically before their eyes. There are actually a couple of dimensions when it comes to what fintechs mean for tax return services and whether or not they pose an actual threat. First of all, fintechs and the transparency and accessibility that they bring are very fresh to most people who have been using banks and their local tax filing services to deal with all their financial matters. Fintechs do have the opportunity to take over this aspect of the industry by providing automated results of the tax filings but some are concerned that automated tax filing can be faulty and actually bring more harm than good. 

While there is no shortage of software developers offering a way to file taxes on your own, industry professionals say that these services can often overlook the deductibles and they are not as mistake-proof as they often claim to be. While those statements could be biased because the technology threatens their entire industry, there must be some truth in that personalized tax filing services will probably be more accurate than the ones provided by the software.

Fintechs against traditional financial services

While the forecasts are quite positive for the collaborations between these two there have been no clear signs that this will be the case in 2020. Fintechs have constant clashes with these traditional financial industries and service providers because they are entering a zone which for those who have been in this business for ages seems far too personal for the fintechs to take over. But these financial startups have gained so much popularity and attention from the community, especially from people that were most often denied or abused by these financial systems that it will be hard for those industry veterans to get more supporters compared to Fintechs. There is no denying that Fintechs have improved the lives of millions of people and they have opened up the door for opportunities that we would even think about even 5 years ago. But very often it is easy to get lost in the innovation aspect of it and forget about the disruption that comes with massive innovations and changes like these. 

When dealing with these modifications, that is often scary to those whose industries are under threat because of Fintechs, their approach has often been far too aggressive and it has isolated the entire industry while painting them as villains. In reality, Fintech while wildly successful won’t be able to go too far without the support of more traditional institutions, government, and regulatory bodies.

Where Fintechs are lacking

It is often the case that fintechs have to face criticism or backlash from these entities because they don’t offer as much security as more traditional service. The same could be applied for the taxing services that fintech could be providing. One of the main challenges that keep fintechs form taking over the entire financial world is the accessibility and the transparency that maybe is not what most customers want out of their financial services provider. 

With taxes there is a lot at stake, some people rely a lot on their tax returns and maybe wouldn’t want to leave that up to a software to manage their taxes because they either don’t trust that the privacy and the security of these fintechs is top-notch or that they don’t want to trust companies that haven’t been around for long enough to have the trust of their customer that they will do their job flawlessly. 

Fintechs have taken the world by storm but have left it up to others to take care of the mess. There is no alternative to fintech in this day and age. Everyone realizes that technology is now an essential part of every business and you can’t separate it from anything anymore. The only way to make the transition easy is to find a middle ground, which of course is easier said than done. Especially when you have driven, ambitious and stubborn people on both sides. It’s difficult to focus on collaborations when each side is after domination.

But for most people, the ideal outcome would be the blend of these two sides where fintech brings the innovation, transparency and easy structure combines with the responsibility, security, and privacy of the traditional financial institutions. Tax reports which help the citizens calculate their liability, schedule payments or request refunds are complicated and often require adjustments that simply can't be made automatically. There is a lot of downside to filing your tax reports with these traditional tax reporting services like the amount of time and the extra money it takes but they do have the perk of being reliable and mistake proof which often technology can not do. And we’ve seen that with the example of Apple, where  Apple pay distributed credit scores incorrectly even though the company claims that the algorithm only looks at the people’s bank account and their incomes but women kept receiving significantly lower credit score than their husbands even though they have all the same checking accounts. Technology for all its perks is great but it is not 100% dependable and neither are humans, but in this case, mistakes can be much more easily fixed than when we turn to fintechs to do our taxes as well. 

There are two sides to Fintechs and while the innovation aspect of it is thrilling, it also means that there will be a major shift in the way these industries operate that will take time and some lose so it can move forward with the new structure but that does not mean that all traditional institutions are obsolete. It will take years for Fintechs to get the same trust and respect from the customers as well as governing bodies that banks and tax reporting services have enjoyed all this time. This is why working together and not against each other is the obvious choice for traditional financial services and banks. 2019 wasn't a very collaborative year for these two but hopefully this year we will see some progress in this direction that will allow both sides to do their best without any unnecessary complications.