FinTech, Taking The Voice Out of Lending

FinTech is the latest buzz word to enter the lexicon of the financial industry. FinTech simply describes the use of technology to streamline the financial services industry, bringing automation and speed, usually through the web, to lower costs and obtain faster approvals. There is really nothing new about using technology in the financial space. Although the legacy of the financial sector has traditionally been slow at adopting new technology, it has made great strides in serving customers efficiently, and more importantly securely, over the past 20 years.

With the founding of Fair Isaac and the FICO credit score, automation technology has enabled a whole host of efficiencies and speed in the financial sector. The Fair Isaac score and public records, coupled with the internet has already automated many basic financial decisions. The financial sector has always seen technology as a tool for making decisions, notthe driver of decisions. FinTech seeks to make technology the driver of decisions.

Term loans and business loans are the newest area being targeted by VC’s and young start ups. These loans have historically been made by loan officers listening to borrowers and understanding the borrowers needs.  Lending Club, Prosper, OnDeck,

BlueVine, Kabbage and LoanMe are just a few of the new entrants that believe they can disrupt the old guard and remove human intervention from financial decisions. Competition has become so fierce defending markets that rates have plummeted for both legacy financial institutions as well as for the new FinTech companies. Legacy financial institutions have been struggling to make a profit on new loans, while new FinTech company’s, flush with Venture cash, are more interested in gaining market share than they are with ever making a serious profit.

The question is who will survive? Is it the old line bankers and financial professionals that still use that old gut instinct to make a loan or the new tech savvy start ups that mine data to make decisions? We might have already seen this story play out. It was just ten years ago when young entrepreneurs believed that they had hit on the logarithm to wring inefficiencies out of the mortgage industry. Their financial model showed that packaging pools of loans could increase home ownership, lower costs, wring out inefficiencies and make banks gobs of money. It’s hard to find anyone on the planet who doesn’t know how that story ended.

Are there ways to make lending more efficient?

Certainly.

Is it important to know your collateral, your borrower and their ability to pay off your loan?

Absolutely.

Economies ebb and flow. If we have another downturn in the economy, it is not the mortgage industry that will pay the price, it might be FinTech that pays the price. If a FinTech meltdown is even half as disruptive as the mortgage debacle, we might be headed for a wave of bankruptcies and a boatload of new regulations coming out of congress, not to mention another round of finger pointing. If you don’t want to be reduced to bits and bites, give AeroFund Financial a call. We still want to hear how we can help your business.