MoneyLion explains: What’s fintech?


If you’re reading this, you’re already participating in the fintech revolution. Congratulations!

This new buzzword – a mashup of the phrase “financial technology” – is the result of how the latest innovations in technology are rapidly starting to change all aspects of the financial services industry: payments, insurance, lending, deposits, and raising money.

In the past, your standard, run-of-the-mill bank was the automatic option for most of these financial needs. And while banks have been a big part of incorporating advances in technology, the growth of technology companies focusing on the financial arena has accelerated recently in the wake of most of us owning smartphones, advances in computing power, and what’s commonly called Big Data — the massive amount of digital information that we’re generating from all of our constant internet use.

How fintech is helping you

Fintech’s mission is to change the way consumers interact with money, giving them more choices, additional convenience and lower fees. For smaller businesses, it could mean easier and quicker access to financing. Imagine downloading an app for a mortgage instead of trudging into a bank for a face-to-face meeting. Or having your entire retirement fund managed by a sophisticated up-to-date algorithm.

Startups focused on financial assets and capital markets are modernizing trading platforms and tools used on Wall Street. Those involved in payments provide customers and small businesses new tools for purchasing goods and sending money. Lending and financing startups are providing new marketplaces linking lenders with borrowers and businesses with investors. And account management startups are changing how people save money.

Fintech companies have the advantage of being freer from the standard regulatory environment, while also avoiding old IT systems or bank branch networks. For those reasons, a fintech company often has lower operating expenses that allow it to offer better deals to both borrowers and lenders using its platform.

These new companies also have newer, unique ways of assessing risk – some of them use social media to determine how well small businesses are doing, for example. Others use machine learning to offer services to consumers who may have had their credit scores take a hit during the financial crisis. Then there are companies like Kickstarter that use the wisdom of crowds to finance startups.

One fintech goal is a more diverse and stable credit environment for both lenders and borrowers. An internet-based lender isn’t as concentrated in one location as most bricks-and-mortar lenders, allowing for easier diversification of the lending portfolio. In addition, the business model for fintech lenders is inherently different: many of them match borrowers and savers directly, unlike banks, which take in short-term liabilities like deposits and create long-term assets such as mortgages. Banks borrow heavily to fund their lending, an inefficiency that fintech avoids.

Fintech’s growth

Because of how large the financial services industry looms in our lives, the potential market for fintech is enormous. Goldman Sachs estimates that these new companies could gain as much as $4.7 trillion in annual revenue from established financial services firms like big banks and lenders.

That’s why investors and venture capital firms are pouring money into fintech startups: venture capitalists invested more than $23 billion in fintech in the past two years. In 2014, they invested nearly $14 billion alone – that marked a 46% yearly growth rate since 2010.

Banks aren’t the enemy

But it’s not like traditional banks are going by the wayside. When you consider that total credit card debt in the US totals almost $900 billion, most fintech firms are just a drop in the overall bucket. But the established companies also see the attraction of fintech’s innovations – that’s why many of them are trying to build their own fintech products and services — or just as often, they’re buying into or partnering with one of the new upstarts. If you can’t beat ‘em, partner with ‘em!

For many big banks, it’s a realization of a changing landscape, but one that can help their own businesses. For example, a payment platform provider like Square merely makes it easier for small businesses to take card payments – that’s a good thing for the big banks that issue the cards.

The progress of fintech will undoubtedly mean that these new companies will experience varying levels of success. What seems easier to predict is that the consumer should benefit from the journey.

MoneyLion’s role in fintech

At MoneyLion we’re leveraging Big Data to provide better personal loans to our customers over the web and smartphones. But we’re more than just a loan provider – we want to help you achieve financial wellness – which is why we also offer free credit monitoring, financial tools to track your spending and savings, and a unique rewards system where you can earn gift cards, rate discounts, and other Perks for your everyday good financial actions. But that’s not all… stay tuned as we roll out more exciting products in 2016!

Also, if you haven’t seen it already, check out our recent video for a quick ~30 second view into how we can help you manage your finances. Let us know what you think in the comments below.

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