How Fintech is Disrupting the Evolving Alternative Finance World

Fintech is changing Alternative Finance

Fintech is changing Alternative Finance

In our increasingly globalized world, businesses are able to spread their wings beyond geographical borders and physical cash. Lending, once dominated by the banking industry, has emerged in a completely disruptive and innovative format – digital lending, or FinTech. In the last year, especially with the Covid19 pandemic shutting down services around the planet, Fintech has become a hot topic and an alternative finance option for small businesses looking for capital.

Fintech has disrupted alternative lending

What is FinTech?

A disruptive force in the financial sector, the Federal Reserve Bank of NY estimated that $12 billion has already been invested in Fintech (in 2014), with this number rising exponentially each year. The Economist defines Fintech as “new entrants that use internet-based and mobile technologies to create new or superior banking products. FinTech firms range from startups to the bank product offerings of large tech firms, such as Google or Apple.” In other words, these companies use tech to assist financial transactions among businesses and consumers, such as peer-to-peer and B2B lending, cryptocurrency, crowdfunding and more. Some companies to watch out for include Kabbage and Brex for B2B credit lending, or Kindur and Betterment for investing and investors.

Small businesses see FinTech as a path to exponential growth

Small-and medium-sized businesses (SMBs) who need capital to scale up are using these options more than ever, leading to a transformation of the financial landscape as a whole. In fact, according to a Federal Reserve Bank survey from 2014, nearly one in five credit-seeking small businesses had applied for funding through an online lender.

SMB’s no longer need incredible credit scores, endless bureaucratic approvals or valuable assets for security. All they need is to choose from one of the multitudes of FinTech companies out there, each offering their brand of P2P (peer-to-peer) loan system. Each company also has its own regulatory rules, its own process of application, etc.

Transformation to Fintech AFN

Fintech is Disrupting traditional banking

Since this disruptive force has been unleashed, banks have seen a decline in loan applications and transaction services in general. This is not surprising; the world of FinTech is free of governmental regulation for the most part, free of physical restraints and incredibly agile. The technology used by companies such as Kindur, Stash or iCapital Network is praised for speeding up application and data collection processes, streamlining what is normally an arduous series of paperwork; resulting in quick and effective matchmaking of potential investors or lenders to relevant SMB’s and individuals. Say goodbye to bottlenecks and paperwork – With FinTech, your peer-to-peer investing or borrowing becomes virtually easy.

Making waves- risky, or innovative?

Some cautious experts see this boom in lending tech as a risky and under-regulated disruption; after all, the banks in the USA have become highly regulated over the last 10 years and a wild west lending option can be a risky path. However, even those opposed to the risk inherent in FinTech can see the positive impact these technologies are having on the market. Traditional financial giants and banks are now forced to invest more in technology, develop their virtual services and leap out of their comfort zone to join the quickly growing alternative tech space. Some experts believe that banks may soon integrate FinTech into their own systems, bringing the old and new worlds together; this has not happened yet, but let’s wait and see.

What does this mean for you?

If you are looking to raise capital for your business- FinTech and P2P may be a great option for you. Traditional banking is likely to simply integrate with these new companies, ensuring the survival of the banking system in general (so no need to give up on them completely). The things to keep in mind when making these big decisions are as follows; first of all, your currency preference. The debate over cryptocurrency is as heated as ever, with no clear answer. Second, choose a company that has the level of regulation you prefer. Read the small print and ensure you are secure with their privacy policy and repayment rules. Finally, remember that this disruptive industry is bound to only bring a positive impact to your business. Forbes predicts that small businesses will have more competing lenders and gain a better understanding of their business creditworthiness. After all, the borrowers are the engine for this powerful new machine, and your needs will shape this industry.

Learn more about how the Fintech industry is changing Alternative Finance in this video:

 

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