Kyle Ferguson is president of Bristlecone Holdings, a high-growth financial technology company based in Reno, Nevada.
When Lending Club fired its CEO over dodgy lending practices earlier this year, people feared the scandal would set back the world of alternative finance. But the misstep was actually a blessing: While the missteps were unfortunate, they inspired other lenders to get more disciplined. Financial technology (fintech) is a young but $78.6 billion–strong industry, and legal precedents can only help it thrive.
Unethical business practices by one company can ruin opportunities for all, and that would be a tragedy given that alternative finance holds the power to transform the industry, bringing services to millions who have long been excluded from the system.
Fintech stagnated in 2016 as startups and investors paid heed to the regulatory landscape, taking a wait-and-see approach. Investments also were timid, thanks to the recent presidential election and the market uncertainty it caused worldwide. But now that the political cycle has ended and fintech has weathered its first big storm, it’s poised for growth and innovation, ensuring nothing short of a banner year ahead thanks to a maturing market.
1. BRICK-AND-MORTAR LENDERS WILL ENJOY A RESURGENCE.
Traditional firms like Goldman Sachs will capitalize on Lending Club’s missteps by arguing that point of sale is where it’s at — and they’ll be right. While online components are critical, people appreciate having a brick-and-mortar provider where they can speak with representatives. Jeff Bezos has already picked up on this, which is why Amazon is making a foray into physical grocery stores. Finance companies will follow suit by emphasizing merchants’ roles and driving business to these physical partners.
2. BANKS WILL REINVENT THEMSELVES.
Traditional institutions recognize that fintech is here to stay, and they know they must innovate to stay relevant. Wells Fargo recently updated its mobile site and app to include educational resources on investing and developing credit, signaling its growing awareness that mobile is an integral part of the banking experience. Mobile apps aren’t merely add-ons for banks trying to appeal to younger generations; they’re now baseline requirements.
Banks that dismissed fintech initially are now scrambling to keep up. Goldman Sachs announced that its new online platform, Marcus by Goldman Sachs, will provide consumers with access to unsecured personal loans that allow them to streamline their debt payments. Expect more large banks and investment groups to release similar products. Some may even acquire fintech companies to boost their digital offerings, thus blurring the lines between the two.
3. MOBILE WILL DRIVE FINTECH INNOVATION.
2017 will be the year of alternative payments. Heavy hitters like PayPal, Apple Pay and Google Pay will continue to flourish as merchants increasingly encourage customers to pay via their phones or digital wallets. But smaller companies will emphasize mobile payments as well, using new apps and streamlined systems to drive more widespread adoption among consumers.
The natural next step from alternative payments is for smartphones to become people’s go-to personal finance management systems. Individuals will pay their bills, monitor their budgets and make purchases almost exclusively through mobile apps and notifications.
4. FINANCE COMPANIES WILL CATER TO THE UNDERBANKED.
Approximately 24 million U.S. households rely on services like pawnshops and payday loans to access cash and credit. Fintech companies will target these millions through new products and underwriting models that look beyond traditional credit indicators. Alternative finance startups are already creating ways to reduce risk for lenders and improve consumer behavior prediction so they can cater to a wider range of customers.
5. BANKS AND FINTECH COMPANIES WILL RESPOND TO CONSUMER DEMANDS FOR TRANSPARENCY.
With so many finance companies vying for their business, consumers will enjoy an unprecedented amount of influence when demanding transparency. Until recently, average consumers didn’t fully understand the terms associated with their financial products. But now they have incentives to compare offers and ensure they’re getting the best deals — which means that, in turn, financial companies have incentives to clearly articulate their underwriting practices, pricing schedules and customer benefits.
Improved efficiencies will empower consumers and hold banks and fintech companies to higher standards of transparency and ethics.
6. TECH WILL FACILITATE INNOVATION AND THE PROLIFERATION OF MICROECONOMIES.
Back-end automation holds the power to transform financial companies by streamlining account management and brokerage services. Enhancements in financing will also enable individual verticals or marketplaces build cooperative microeconomies, thanks to improved access to capital. As peer-to-peer platforms enable individuals to extend credit to new businesses and private borrowers, we’ll see considerable growth in the number of enterprises that go to market quickly using new forms of financing.
Fintech startups give customers a voice, and they’re forcing change in an industry long overdue for disruption. The future will see customer needs take center stage, with both fintech and traditional institutions.
