Despite all the technological advancements of the last century, lending has proven to be an extremely stubborn industry, seemingly resistant to any change whatsoever.
That is, until fintech companies began disrupting everything.
3 Reasons Fintech Companies Threaten Traditional Lenders
Traditional lending is on its way out.
The writing is on the wall.
If you need some convincing, though, here are three examples of how fintech is changing everything about lending.
- Instantaneous P2P Transfers
Similarly, it used to take an equally agonizing amount of time to send money between two people or to otherwise transfer funds from one account to another.
Although PayPal began changing that more than a decade ago, it’s no longer alone. Companies like Square Cash and Venmo are now providing services that let customers link their bank accounts or even credit cards to quickly make secure P2P transfers.
If traditional banks want to keep up with these fintech services, they’ll need to offer their own versions. The problem is that PayPal and others are bank-neutral. As long as both participants have PayPal accounts, it doesn’t matter with whom they bank.
For this reason, traditional banks are going to have a very difficult time finding the same acceptance and may never be able to enjoy the same market.
- Borrowers Hear Back within Days
Borrowers can now apply for a loan and find out if they were approved within days. Sometimes, it takes even less time than that.
Traditional lenders need to pick up the pace. They can no longer expect borrowers to wait weeks – much less months – to hear back from them.
This is true even with student loans. Thanks to private student loan lenders, students who have maxed out their federal loans don’t have to wait months at a time before finding out if they’ll be able to afford next semester. Instead, just a few minutes online is all it takes to apply for the funds they need for college and hear back.
- Loan Comparisons
It’s hard to imagine, but there was once a time when the only way to compare loan options was to go from one lender to the next – either physically or on the phone. Either way, there was a lengthy application process involved.
That’s why most people never bothered, and most traditional lenders could only rely on “brand loyalty” to secure customers.
This is no longer the case. In fact, companies like Fundera are even making it easy for borrowers to compare business loans across multiple lenders.
Banks and other traditional lenders have had no choice but to give in to this disruption. If they don’t volunteer this information, they are left out of consideration. They also need to keep their rates extremely competitive or they might as well be left out.
Fintech Represents the Future of Financing
Fintech has proven to be more than just a disruption. It has already revolutionized the world of financing and there is no reason to believe it won’t continue to do so.
Therefore, in the future, expect that more and more traditional lenders will either adopt fintech solutions or lose to competitors who do.