Throughout history, money lenders have been viewed with a healthy dose of distrust and scepticism.
The 2008 financial crash, which came about due to risky lending practices encouraged by the banks, has only made this worse. More often than not, the debate between the public and financial services has hinged around the fact that those who have money exploit the needs of those who don’t, by making an ever-growing profit on the amount that they lend.
Over the past few years new fintech companies have begun to change the way the public views the financial services sector. These companies provide some of the same services that the banks do, such as loans, savings advice, and investments. However, unlike banks they’re not tied to the traits we associate with big money lenders — selfishness, greed and exploitation.
London’s fintech hubs are booming, with over 12,000 startups disrupting financial services with products that are often cheaper for customers. This poses a real threat to banks’ profits, according to a recent report from McKinsey.
Now you can trade stocks from a mobile device without the usual transaction fees that would often apply if you were to go through a traditional broker. Rather than focus on exploiting your returns, these companies find alternative, friendly, avenues to make money for themselves — normally through adding extra value for their clients over and above the original transactions.
Fintech makes the startup journey more accessible
For start-up businesses and ambitious entrepreneurs, fintech companies can provide an innovative and appealing alternative to borrowing from the bank. In 2003, working on my third startup, there were only 3 realistic options for financing a startup: the bank, friends and family or my own savings. As a student, my savings were enough to get our minimum viable product up and running, but not enough to start scaling. Bank managers and VCs struggled to take our idea seriously because they didn’t think there was real value in building a disruptive online travel platform. Their only question was: ‘What makes you think that people will buy something off the internet?’. So, at that point, our only choice was convincing our friends and family to get us through the first six months of trading until we became profitable.
The options for startups in 2016 are completely different. Founders we work with can explore financing from angel investors, crowdfunding and peer lending, in addition to venture capital and business loans from organisations who now understanding the market.
It’s easy to see that, for start-up companies, having easy access to capital away from the traditional banks can be appealing. Not only do fintech companies cut fees for their customers, but, in the long-term, it’s predicted that they will create a more diverse and stable credit landscape.
Something for everyone
This sector is not only limited to startup and business financing. The sector offers alternative and often better options for lending, personal finance, payments, equity financing, retail investments, security, financial management tools, consumer banking and insurance.
This new market of alternative finance focuses on attacking the real world problem for users, providing solutions that normally involve reduced costs, and improved quality of services. Their business models are built around their users and not their shareholders.
Fintechs may not ever be in a position to get rid of banks completely, but these new services may very well restore the public’s trust in financial services in general. Although it’s impossible to predict what will happen to the industry in general, for now, fintechs are already beginning to force the traditional financial services firms to cut costs and improve the quality of their services. This is particularly true for entrepreneurs and start-ups, so perhaps our faith in banks may not be restored, but our faith in financial services may very well be on the rise.