The media is abuzz with the emergence of Finnish technology companies; and they’re markedly different from the norm. There is no doubt that consumers have been crying out for an alternative to traditional banking practices for a long time now, particularly when it comes to things like high remittance fees and transfers. But are FinTech companies bringing about revolution or evolution?
The Argument for Revolution
From peer-to-peer lending, to wealth management, to crowd funding – there is nothing that is off limits to FinTech companies. This new generation of start-ups was said to be worth an estimated £6.9billion in 2015; and they are growing fast.
Many of these companies continue to see billions in investment and are long past the experimental start-up stage. So who are these businesses? Well, there’s OnDeck and Lending Club, money lending companies, both of which have gone public. Then there are money transfer sites such as TransferGo, which have exploded in the last few years after bringing new business models to the virtual duopoly of the remittance industry.
So What is so Special about FinTech Companies?
The common thread that seems to bind all of these companies is a strong customer focus. This of course contrasts sharply with banks obsessed with risk following the economic downturn of 2008.
They manage this using new ways of assessing risk. Traditional lenders remain steadfast in their reliance on a single credit score. By contrast, FinTech companies take onboard all the information they can get from social media and a range of other sources to assess how well a small business is doing. This in turn means that they are more likely to lend to companies whose credit scores were damaged by the recession.
In the remittance industry, costs are cut by restricting its operations to online and are therefore able to offer much fairer rates on currency conversions. This is a godsend for migrant workers who want to send money home and for companies that wish to do business with those overseas.
The Argument for Evolution
FinTech firms are start-ups and we are yet to see whether they will overtake traditional institutions in terms of popularity and investment; but at the moment, that simply isn’t the case. By 2015, investors had plied £6billion into Lending Club, but this pales in comparison to the £610billion in total credit card debt in the US alone.
There’s no doubt that FinTech firms are causing a much-needed shakeup in the finance industry. These innovative Finnish companies have breathed new life into the different industries in which they play a part, but they are by no means the dominant force.
So as it stands, this has caused an evolution, rather than a revolution. Yet this could change in years to come if traditional institutions don’t take notice and adopt new approaches defined by the younger and more vibrant FinTech firms.