Changing the game: Is the fintech revolution here to stay?

The post Changing the game: Is the fintech revolution here to stay? appeared first on Your Loan Hub.

 

There’s no doubt that fintech – the world of cryptocurrency, neobanks, peer-to-peer lending and mobile-first payment services – is a big deal. But has it changed the way businesses and consumers bank and manage money? Or does the rapid pace of evolution outstrip the benefits?

In the world of startups, companies that are valued at over US$1 billion are called ‘unicorns’. And in March 2019, Australia saw its first fintech unicorn in real-time payment platform Airwallex. That was thanks to a $201 million round of additional capital raising – which was just a slice of over $1.4 billion secured by Australian fintech firms during the year.

Founded by a group of uni students from Melbourne, Airwallex fits the stereotypical startup model of ‘outsiders with an idea’ that has grown into a company making waves across the globe.

More than half of digitally-active Australians now use fintech products and services to pay bills, manage their accounts, apply for loans, and get the best deals. But even that’s low when compared to the number of people embracing financial technology in emerging markets like China and India.

Where’s all the growth coming from?

Across the globe, the insurance industry is embracing the benefits of AI-assisted risk assessment. Tech-driven ecosystems make managing front and back-office processes easier for businesses than ever before.

“Fintech is no longer just the domain of ‘little guys’ looking to disrupt an industry in need of change.”

Digital cryptocurrencies are becoming a norm, not a novelty. Online only Neobanks, backed by alternative capital sources such as superannuation funds, are making traditional banks rethink the way they do business. And financial service providers are using algorithmic “robo-advisors” to remove human error from equations.

Fintech is no longer the domain of ‘little guys’ looking to disrupt an industry seen as needing change. They are forcing those in the industry to change the way they think and operate.

Silicon Valley superpower Facebook is on track to launch its cryptocurrency, Libra, this year. And massive American banks like Goldman Sachs, Citigroup, and JPMorgan Chase were major investors in the global fintech sector during 2019. In Australia, the banks have teams of designers, coders and creatives working on innovative new tools and products.

But beyond who’s behind the movement, it’s important for service providers – big and small – to strike a balance between customer demand and disruptive opportunity.

Businesses see the solutions offered by fintech startups as a way to ‘even the playing field’ – giving them access to the sorts of personalised services and partnerships that big banks traditionally only offer to bigger businesses.

And consumers are drawn to a new range of simple, seamless solutions that take the time and effort out of money management; and access to lenders who evaluate them on individual merit and not just their balance.

Changing the way we lend and borrow

Since SocietyOne became the first Australian company to offer the service in 2012, peer-to-peer lending has become an integral part of the money lending landscape – and one of the biggest fintech sectors. ASIC reports that a total of $300 million in peer-to-peer loans were written during the last financial year.

Put simply, peer-to-peer lending matches businesses and individuals who have money to invest to those looking for a loan – most often through an online platform like an app, portal or website.

Investors benefit because they’re paid interest on a loan that would usually go to a bank. Borrowers can often access loans with lower interest rates than they would from a larger institution. The fintech acts as an intermediary, matching suitable lenders with appropriate borrowers, keeping the personal details of all involved confidential.

And the power of fintech can also make things faster and more cost-effective when it comes to lending and borrowing. Smaller lenders who use online platforms and a data-driven approach to risk assessment can appraise and approve loans in a fraction of the time it takes one of the big banks.

Fintech companies often offer more competitive fees and rates to consumers, too, thanks to lower overhead costs when it comes to staff, office space and administration.

What risks come with these new rewards?

The primary risk when dealing with a fintech instead of a big bank – despite who is behind the startup – comes down to reduced financial experience and fewer rules and regulations.

Some fintech companies tend to operate in less-regulated spaces than traditional institutions, like small business finance providers who don’t require a credit licence to offer business loans.

The Australian Securities and Investment Commission operates what’s known as a “regulatory sandbox“, designed to help fintech trial new products and services for up to a year without the company needing Australian financial services or credit licence.

But many fintechs – or, their parent companies – have financial and credit licences in place. Others partner with licensed financial providers to make sure customers see them as trustworthy.

Ultimately, it’s best for anyone dipping their toes into borrowing or lending via a fintech to do some homework. Check what licenses and security measures are in place (or not), and understand the terms and conditions of anything you’re signing up for.

Despite more and more Australians embracing the fintech revolution – and the increased emergence of innovative platforms, lenders and tools – there’s no reason to believe the big banks will be a thing of the past any time soon.

They command the majority of the Australian lending market, and all signs point to them embracing the potential of fintech now and for the foreseeable future. And with the big banks firmly on board, it’s safe to say that fintech is well and truly here to stay, too.

Source: Your Loan Hub

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