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