[co-author: Donald Griffith II]
Imagine applying for a mortgage or commercial loan on Amazon or shopping for a checking account via an App on your Iphone. As many in the financial services industry may already know, there are a new brand of startups known as “Fintech” companies who are rapidly becoming viable alternatives to traditional wealth management. “Fintech,” which is abbreviated from financial technology, are various startup companies who are utilizing technology to make traditional financial services more efficient – for example, mobile payments, money transfers, loans, fundraising and asset management. Fintech companies can provide users with a variety of financial services that were once exclusively within the purview of a traditional bank (from facilitating investments, financial planning to underwriting). Fintech startups are geared towards giving the consumer a more personalized and efficient product than currently exists. If the trends continue, Fintech companies will cause the technological areas of consumer banking to undergo significant changes.
Fintech companies are capitalizing on digital technology to transform the way consumers access financial services and information.
As many Lenders know, consumers are increasingly demanding customer centric solutions that give instantaneous, tailored responses based on that individual consumer’s needs. A Fintech company can use technology to create a personalized solution for the demanding consumer.
Fortunately for the industry, the emergence of Fintech companies may not be all bad. Lenders who play their cards right may even be able to use a Fintech startup to their advantage. Cooperation between a lender and one or more of these startups could lead to symbiotic relationships. For example, some Fintech companies eliminate the need for financial advisors by providing apps that enable users to keep track of their spending and stay on budget. A Lender with foresight could partner with a Fintech company and offer this service on its own banking platform.
There are three things to look forward to with regards to how Fintech companies will revolutionize the financial services industry:
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Fintech companies will cut costs and improve the quality of certain financial services as they are unburdened by regulators (so far…).
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Fintech companies will create new ways of assessing risk. By utilizing machine learning and logistics, Fintech startups will change the landscape of risk assessment.
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Fintech companies will lead to a more diverse credit landscape. Most Fintech firms are internet based, meaning they are less geographically concentrated than traditional lenders.
Cooperation and partnership will be crucial to a lender/ Fintech relationship. Clearly, Fintech startups will benefit from the reputation, stability, experience and client base of a traditional lender. However, the lenders must be acutely aware of possible legal repercussions of a Fintech partnership. It will be incumbent upon lender to assess the legal risks and regulatory challenges of partnering with these startups.
If in the end a lender can successfully navigate the risks, the upside will likely be worth it. After all, if history has taught us anything, it is that technology should be embraced rather than repudiated.
Donald Griffith II is a Law Clerk in the Litigation Department of Murtha Cullina LLP.
