The Fintech revolution powered by Smart Data is happening. Startups are disrupting financial technology that remained unchanged for decades. The new non-bank lenders adapt to emerging technologies and manage to integrate them into risk management, customer relationship management and pricing in order to enhance the service. The Fintech revolution is not about killing the banks, it’s rather about significantly improving the long-existing service by focusing on ever-growing customer needs for speed and inclusivity. And, due to increasing customer expectations and the ability for Fintech entrants to match the demand, there is no doubt that it will reshape personal finance and the way we look at it.
Better risk assessment
The new technology-enabled Fintech entrants are not afraid to experiment with technology when it comes to underwriting. They come up with new, clever ways to assess the risk. Data-driven lending has clear advantages: the service in many cases is supported by self-learning algorithm, which minimizes the need of human interference in decision making. That translates into better risk assessment and decision making. By utilizing self-learning technology in risk assessment, companies become more automated, disrupting existing banking and credit systems. That’s why Fintech is sometimes referred to as algorithm-based banking.
Fintech disrupters are not burdened by legacy IT systems or branch networks, giving them an advantage over banks. The new entrants are also not overwhelmingly big which makes them flexible for change whenever needed. Such tendency to promptly adapt to changes and integrate technology into risk management and customer service is reflected in service level of companies and overall economic efficiency. The outcome – cheaper, faster and better quality personal finance services resulting in a larger population of satisfied customers.
More diverse credit landscape
Banks usually position themselves in one location before they expand, whereas Fintech firms can start lending despite their initial placement. The lack of geographical concentration allows the new Fintech disruptors to expand into a more diverse credit landscape and scale. Simply put, the new players have an opportunity to offer credit products to parts of the market that have been underserved by the big banks.
Higher customer reach
Online presence of the new Fintech businesses makes service more accessible, quick and user-friendly since customers can easily navigate, choose and compare the offers online regardless of location or time. Keeping in mind the efficient use of technology, decreasing costs of web-based technologies and an ability to match ever-increasing customer expectations on speed of service, attracts even greater amount of customers. Trouble-free and straightforward process of non-bank personal lenders is yet another favourable addition that sways a great number of customers, out of whom a large chunk is underbanked.
Matching ever-changing customer expectations
The changing way of doing business with the help of technology shapes customers’ expectations: they expect that anything can be done online through mobile devices and are seeking for personalized products with a simple application that can be performed in a speedy manner, such as a “one-click” loan. E-commerce and digitalization of services have shaped customer expectations and therefore has put pressure on banks to match the offer. Big organizations, however, are usually too big to change, whereas the new entrants are both able and willing to adapt to changes to meet customer demands for speed and access. It’s obvious that Fintech revolution is changing the way personal finances are being handled and such change affects both businesses and customers. Fintech companies are successfully implementing the change, the main question is – will the banks keep up?
Great post! Couldn’t agree more. I think the two biggest barriers of fintech startups at the moment are burocracy (wich for me, here in Brazil is overwhelming) and a certain amount of capital. When startups break that barriers, we gonna see a revolution in finance. The main beneficiaries will be the customers.
Thank you for your feedback! I couldn’t agree more with you. Startups do face difficulties, however the ones that manage to go through the hardships present customers with great products. One of examples could be Creamfinance: the company actually started its activities having gotten a modest investment to date: with only 18mio capital raised the company is competing with market leaders having 10 times more financing. When it comes to bureaucracy I personally would say that Fintech landscape has real difficulty to comply with all regulations, but due to less historical burden has also some advantages versus other players (especially regarding data quality).