When it comes to financial services technology, cryptocurrency may be stealing the headlines, but more important to most people are the many ways fintech automates and simplifies their lives. In this article, data-driven investor Daniel Calugar explores three significant benefits fintech brings to ordinary people.
Financial technology (Fintech) is a term used to describe disruptive technology that endeavors to improve and automate financial services processes. For example, many Americans haven’t visited their brick and mortar bank branch in years, largely attributable to fintech. Instead, we can deposit checks, transfer money, pay bills, and get a loan, all from our smartphones. Fintech makes this possible.
Peer-to-peer (P2P) lending, also known as marketplace lending, is a growing alternative to traditional lending. P2P is an innovative online service where individual investors fund a loan, a portion of a loan, or multiple loans directly to individual borrowers.
By cutting out traditional financial institutions such as banks or savings and loan companies, borrowers can access funds quickly, and individual investors earn a healthy return. Using a smartphone app or computer, borrowers apply for a loan on a peer-to-peer lending platform. Investors review loan applications and select which ones they want to participate in or wholly fund.
The lending platform monetizes the service by charging a small service or transaction fee. The borrower pays interest to the lender, but the cost is generally lower than a traditional loan, even with the platform’s service fee.
Faster and simpler
Another benefit that disruptive fintech companies provide customers is simplified and streamlined loan application, approval, and funds distribution. For example, the entire process of applying for a loan and receiving the funds can be done on a smartphone or computer.
Traditional loans from a bank may have required a multipage paper application that often took weeks to work through the approval process; fintech companies receive the application online. As a result, they can process the application often within 24 hours.
Before fintech, a banker, or worse yet, a committee of bankers and loan officers reviewed each application and tried to reach a consensus regarding the applicant’s creditworthiness. The application and approval process could leave a borrower feeling like a bank was making a moral judgment about every aspect of their lives, not just their ability to repay the loan.
Fintech automates the process of applying for a loan. Of course, someone with less than a sterling credit history may pay a higher interest rate, but there is nearly always a solution for every potential borrower. There are no moral judgments, just an automated process continually being refined to produce the best loans for both borrower and lender.
Advances in financial technology are far more significant to everyday people than the rise and fall of the latest crypto-craze. Fintech introduces new opportunities for borrowers and can make it easy for anyone with money to lend to make put their money to work. Moreover, the processes are fast, simple, and non-judgemental.