You may not have heard of the term “FinTech”, but you most likely have been in contact with a FinTech! Fintech refers to a new generation of online banking and lending solutions, though definitions varying widely;
“Products and companies that employ newly developed digital and online technologies in the banking and financial services industries.” Merriam-Webster
“FinTech, a portmanteau of ‘financial technology,’ is used describe new tech that seeks to improve and automate the delivery and use of financial services.” Investopedia
“FinTech is the new applications, processes, products, or business models in the financial services industry, composed of one or more complementary financial services and provided as an end-to-end process via the Internet.” Wikipedia
Some say they are disintermediating traditional banks and financial institutions. There is truth to this. But, traditional banks are moving to get in to the game, albeit at traditional bank speed (think molasses!)
Why are FinTechs causing headaches for traditional banks? Their cost base is significantly less as they leverage the internet for front-to-back operations. FinTechs provide online personal loans, revolving lines of credit and other financial services instruments without the cost, inefficiencies, and time-consuming processes of traditional banks.
If you go in to a traditional bank to get a loan, you just walked in to a building that costs, on average, $2.5 million to erect, not to mention the labor, utilities, insurance, and other costs required to operate the branch building. Someone has to pay for those costs and it is most likely you, through higher APR, origination fees, etc. on your loan or line of credit. And, if your FICO score is not where you would like it to be, you’ll be shown the door!
Consumers are migrating online to FinTechs at record numbers to conduct their financial services for a variety of compelling reasons:
- Lower costs
- Convenience – all you need is internet access
- Ease and speed of the receiving the financial services
- Less-than-prime credit options are available
~ David Weyher