A recent article from TechCrunch’s David Klein focused in on how technology is forcing finance to humanize its approach. This may not be a sector-wide conclusion, but Klein makes some intriguing points. The finance sector faces difficult decisions to keep pace with the evolving landscape where technology, competition and a new generation of potential business all can break or build many financial institutions. As Klein opens with a quote from Bill Gates, “Banking is necessary – banks are not,” he notes that this is now viewed by many as the unofficial beginning to the shift in financial technology. Just over 20 years from his proclamation in 1994 and Gates’ words are finally showing its validity.
Since fintech began gaining mass exposure in the market a few years, the shift in finance has come in several key facets: regulation, technology and consumers.
On the regulation side, banks are experiencing previously unheard of levels of regulation that they must adhere to. Klein mentions that what used to make up ten percent of a bank executive’s day can now take up to 75 percent. With traditional banking is bogged down in compliance matters, other technology has stepped in to fill its void. Klein mentions that consumer lending has seen the most benefit from the shift. If this trend continues, consumer lending may soon have company at the financial disruption table.
When it comes to technology, Klein notes that technology has allowed numerous fintech startups to enter the fray that traditional banking once held near complete control over. The article goes to note how online distribution has made this all possible, while lending platforms undercut banks with lower cost-bases. However, nothing matters more to the modern customer than getting exactly what they want. By having online exclusive platforms, these startups are able to provide customization to consumers than branch banking struggles to keep pace with.
Building on that point, the consumer themselves are key in the potential sector shift. The new generation of banking consumers are ones that grew up in the recession, hearing nightmares about banking. In addition to this, they are the first generation born into the modern technological landscape. When offered a solution on platforms they understand or going with the rapidly antiquated option, the choice appears easy. As Charles Moldow, a general partner at Foundation Capital told TechCrunch, “I believe this [market encroachment] will happen across lending (consumer, real estate, SMB, purchase finance), payments, insurance, equity and beyond.”
Klein adds that current banking faces three options going forward:
- Adopt the central tenets of marketplace lending (well-priced products, intuitive technology and top-quality service with a relentless focus on the consumer);
- Partner with the disrupters; or
- Be relegated to the shadows as marketplace lenders continue to take market share.
Certainly, anything can change in the progression of the industry, but the evidence does indicate that a change could be on the horizon. It remains unclear how more “human” finance becomes with the latest technological boom, but the time for evolution appears to be now.