The term fintech technically applies to a wide range of products and technologies. One thing they all have in common, though, is the impact they have on traditional financial institutions. Strong fintech products offer customers convenient alternatives to essential services. Many banks and firms have struggled to keep up.
Fintech-based lending companies, for example, have given business owners in need of loans the opportunity to acquire the necessary capital without relying on a traditional bank.
Fintech and online lending firms are appealing to many small business owners because they’re often more willing to approve loans when a person doesn’t have a robust credit history to evaluate. Banks are hesitant to take a risk on someone who can’t demonstrate their creditworthiness. Fintech lending firms, on the other hand, can leverage financial data from the digital world to better understand whether a potential lendee is a safe bet. In the long run, offering small business owners greater access to loans could have a major positive effect on struggling communities and emerging markets.
However, this isn’t the only reason fintech lending firms have posed a threat to banks. They also offer other features traditional financial institutions can’t yet compete with, including the following:
A small business owner likely has a busy schedule. It’s also likely that the schedule doesn’t necessarily fit into typical work hours.
If a business owner relies on a bank to apply for a loan, this unique schedule can make it difficult to find the time to complete the process. Arranging all the necessary documentation and paperwork is time consuming. Additionally, finding an opportunity just to visit a brick-and-mortar location to finish the application process can be a struggle.
Fintech lending firms offer greater convenience in this respect. Because they tend to be based entirely online (and are often mobile-friendly), the process of applying for a loan is much simpler. Small business owners can complete the process entirely through their phones or computers. Best of all, they can apply for a loan whenever it is most convenient for them. Depending on an applicant’s creditworthiness, some of these firms make it possible to get a loan in just a few short minutes.
Some experts have pointed out that human bias naturally comes into play when applying for a loan through a traditional financial institution. Unconscious assumptions a bank employee makes could have a major impact on whether an applicant is approved.
Fintech lending companies, on the other hand, often leverage machine learning technology and other innovations to assess an applicant. This ensures that final decisions about loan approval are based on hard data and facts. Removing bias from the decision-making process can help people acquire the money they need to grow their business.
In general, fintech products have greatly benefited people with limited access to bank branches. This is true in the lending sector as well. If a bank requires an applicant to visit a physical branch when seeking a loan, that restriction could exclude certain people who can’t reach a branch easily.
With an online lending company, anyone with an Internet connection can apply for a loan. For most people, this simply adds another degree of convenience to the process. For those who can’t access financial institutions quickly or easily, it can open doors to future success.
Assistance to Smaller Businesses
Banks often require business owners to put up some form of collateral before approving a loan. Some smaller businesses may not have the necessary resources to do so. Additionally, it’s not uncommon for banks to avoid providing loans of less than $100,000—they simply don’t see a profit opportunity with smaller loans.
Fintech companies are different. Many have filled in the “microloan” niche. This involves loans worth no more than $50,000. Fintech-based lenders are often more willing to provide these loans. Because they aren’t risking as much money as a bank, they are less inclined to demand collateral. This is key to helping very small businesses expand when resources are limited.
Of course, leaders at traditional financial institutions have recognized that fintech lending firms pose a threat to their continued existence. Statistics indicate that small business owners are slowly but steadily embracing this new option, leaving banks behind.
That’s another reason collaboration is important. Banks can’t reverse the tide of the fintech revolution. They can, however, partner with startups to ensure both companies serve their customers to the best of their abilities.