It hasn’t been very long since people like Don Draper were required for virtually all parts of personal and business finance. Sending money, lending, and payments were all monopolized by the banking industry. Thanks to leaders in the financial technology community, known collectively as “FinTech,” that is all changing.
Money is moving faster than ever, and the banking industry chokehold on financial transactions is loosening. Here are some industries where we are seeing rapid change thanks to FinTech and where we can expect to see much more progress in the future.
The first area where FinTech has made a serious impact is lending. While Lending Club was the face of change in the industry, other brands like Prosper and SoFi are making a big splash as well. Lending Club and Prosper are both marketplace lenders that match borrowers with investors, effectively removing banks from the lending process.
Companies like SoFi are taking this further making waves in student lending and mortgage lending as well.Loans are happening faster than ever before and the use of technology has improved both business efficiencies and is making headway on lowering risk, thereby also lowering rates for borrowers while still maintaining healthy profit margins. By pulling from large pools of investor dollars and taking a technology first approach, SoFi and similar companies have fundamentally changed the rules of lending.
For most real estate transactions, both parties need a Realtor and the seller pays 6% of the sale price of the home, split between the agents. Then there are title companies, banks, and other required service providers who all have their fingers involved in real estate transactions. At the end of the day, the transactions are expensive, slow, and painful for both the buyer and the seller. FinTech startups are working on changing that.
RedFin has taken a stand against inefficient real estate transactions and the traditional 6% fees. They understand that most of the home search process now takes place online and by streamlining the transaction process with technology, they can lower costs. I sold my house with RedFin and paid 4% instead of 6%, saving us thousands of dollars.
Taking changes a step further, startups like RealtyShares are taking the marketplace lending model to real estate investors. Now real estate developers and project managers can look to the marketplace for lending instead of banks. For midsized projects and underserved portions of the real estate market, companies like RealtyShares are leading big change.
The payments industry is another area where startups are disrupting the norm. While PayPal is the biggest name and known for driving change with digital wallets, there are new competitors in payments driving huge change. Startups like Dwolla, Stripe, and Square have made bulk payments easier and cheaper for both online and offline businesses.
In the world of invoicing and freelancing, companies like Due are working on the next wave of change. Due is working to make business payments and digital wallets easier and cheaper for freelancers and other business owners around the world.
Getting term life insurance used to take lots of applications to compare rates. That improved with the emergence of companies like SelectQuote that offer multiple quotes with one easy application, but FinTech is still working to make insurance easier and more affordable for all.
Haven Life is a startup backed by industry veteran MassMutual. This company offers no medical exam life insurance policies designed for healthy people, something unheard of in life insurance until just last year. Previously mentioned SoFi is another new entrant to the life insurance industry with a focus on well-educated, high-income Millennials.
FinTech is Just Getting Started
Financial technology is just skimming the surface of its potential. Just as Steve Jobs and Bill Gates worked to change computers and Elon Musk is working to change energy and space travel, CEOs at FinTech companies are trying to change the way we interact with money. You may not know any FinTech CEO names just yet, but rest assured that they will be household names in the not so distant future. They’re just getting started.
They’re just getting started.