The lending space is one of the most sought-after areas in the financial industry. For decades, banks have dominated lending spaces with only some competition coming from smaller financial institutions like credit unions and small dollar lenders. Conventional borrowing is a complicated, drawn-out task that’s turning consumers off. Plus, many banks aren’t even interested in serving the needs that many consumers and small businesses have. That’s given FinTech startups plenty of room to challenge traditional financial institutions and take a chunk out of their lending business.
FinTech Reaches Underbanked Consumers
Underbanked consumers (consumers with insufficient access to banking services, largely because banks have ignored their needs or actively discouraged them from banking for decades) are turning to FinTech in droves. Whether it’s because they have thin credit histories or because they belong to a new economy where traditional lending doesn’t fit their needs, underbanked consumers have discovered the convenience of Fintech.
For many consumers who need cash in an emergency, quick online loans may be the fastest way to solve the problem. Traditional banks aren’t responsive enough to meet the needs of many. These “underbanked” consumers are turning to companies like MoneyKey that provide online payday loans. Online payday loans are designed to provide quick, short term cash and meet modern expectations for banking. That means an online application is all it takes to start to the process while consumers can receive the money via direct deposit or e-payment. Online direct lenders like MoneyKey cut through the red tape of borrowing money. When consumers need an installment loan or a payday loan to cover a personal crisis, an online direct lender can be their way out of financial pain. With flexible payment options that include installments, they’re posing a bigger challenge than ever to traditional banks and credit cards.
FinTech Meets Small Business Needs
Credit availability is the top challenge facing small and micro businesses, and banks have dropped the ball. According to banking magazine The Financial Brand, 44% of businesses struggle with credit availability they need to expand. More than half of small businesses say they need loans of under $100,000 and for most traditional financial institutions, that’s too small to attract their attention.
That’s given FinTech a big opportunity to break into business lending. Many are doing it with MCAs (Merchant Cash Advances) and others are just streamlining the lending process. The Federal Reserve found that a small business owner will spend 24 hours researching and applying for bank loans and often face rejection. The combination of convenience and access to financing tailored to their needs means small businesses are defecting to FinTech companies in droves.
FinTech companies are filling in the gaps in more ways than one. Not only can they help consumers and small businesses bridge the cap when they need cash fast, whether it’s to cover costs or to expand long-term, they’re filling in gaps in America’s banking industry. Watch out for FinTech developments to make even greater strides in the lending space.