Is it the "fin" or the "tech" that is the key to developing the future of online lending?
“FinTech” is one of the biggest buzz words in finance and technology. Online lending platforms are just one of the many different types of companies at the forefront driving the industry. Given the buzz, it’s not surprising that every company with any finance-related technology is attempting to rebrand themselves as a FinTech company, trying to enjoy some of the limelight and investment on offer. With so many companies trying to dress themselves up as FinTech companies, it is difficult to truly understand or identify what a FinTech company really is, and often difficult to distinguish between true FinTech companies, financial services companies that have technology, and technology companies that are dipping their toes into financial services. We wonder: will it be the “fin” or the “tech” that really has the biggest impact on the development of the industry, specifically within the world of online lending?
The financial services industry, in the traditional sense, is an industry that has long been able to rest on its laurels. In doing so, they have neglected to truly take into account the changing needs and habits of their consumers. This has created an opportunity for companies that have dared to think differently; leading to the creation of P2P lending, crowdfunding and money transfer platforms. The ability of these companies to understand consumer needs and meet them, using new technology, has seen many of them grow very quickly. Perhaps more importantly, it has also seen consumers think differently about how they manage their finances.
Whilst the creative technological solutions have been key to the creation and initial growth of the FinTech industry, the most significant development of this revolution has been the change in the mindset of consumers, spurred by the advances brought about by technology. Now more than ever, people are openly engaging with one another about the management of their finances; whether it be about who they have a mortgage with, the best and easiest ways of transferring funds to a different currency, or how to make the most out of one’s savings. Not only are consumers now engaging with one another; they are also more actively engaging with their financial services providers. Even more importantly, they are demanding better services and products from them. Consumers are getting excited about finance.
Traditional finance companies may continue to develop new financial products, and deliver and enhance them through new technologies, but if they fail to consider the new engagement of their consumers, these products are unlikely to be successful.
For example, online lending has become a success story, not because of the advent of a new financial product, but rather through making an old, in-demand financial services product more accessible to consumers. Of course, these companies would not long survive if the “fin” part of the product was neglected. If a company failed to observe good credit risk decisioning processes and poor lending practices, for example, these products – and with it the companies – would fail.
One could argue that whilst “tech” may be driving the FinTech industry, it could not operate without experience of the “fin.” It is likely that the biggest driver of the future of FinTech, specifically within the online lending market, will be, for the first time, the consumer, as they have become both the lenders and the borrowers.
Many online lending platforms may have already come and gone, but online lending is still arguably in its infancy. The products on offer and the types of loans available through these platforms still very closely resemble the more traditional loan types, with the online accessibility and speed of access being the main differentiators. Only over the last two years has the UK seen newer products such as the Innovative Finance ISA come to the market; yet even these mirror older financial concepts.
The fact that consumers hold the power to more significantly influence the financial products available to them, along with the ever-evolving way in which they are delivered, will surely lead to an extremely interesting period of financial services development. Changes in dynamic will lead to other changes, which will not only pose new challenges for FinTech companies and the financial sector as a whole, but will also likely raise some very interesting questions and challenges for the regulators of these markets around the world.
