Fintech Companies and Banks An Uncommon Marriage
When you hear the term 'fintech' you probably associate it with the concept of market disruption. Whether this word association came from an article you have read or an effective marketing campaign from a 'financial technology' startup, we are here to reinforce your previous knowledge that traditional banking isn't going anywhere.
Finance has always been innovated on virtually all fronts, and there’s still huge potential for developers and programmers to progress the industry into a completely different direction. But that will not be the end of traditional finance as we know it for a few simple reasons: security, flexibility, and the benefit of personalization.
Medici’s White Paper illustrates the value in fintech companies serving as partners to traditional institutions rather than competitors. “For banks, these new lending fintech companies enable them to provide a better customer experience, increase revenue by providing more loans and expand their margin by reducing their cost per loan. For fintech, banks provide a loyal customer base, vast financial services experience to learn from, and are familiar with the regulatory landscape.”
The White Paper also suggests that the partnership between the fintech and banking comes in three potential forms of integration. The first option is a business partnership in which fintech companies deal with the customer acquisition and all of the front-facing interaction between the borrowers and the banks – effectively serving as digitized brokers. In this scenario, the banks are still responsible for the underwriting, and the upkeep of all of the back-end logistics that require knowledge of federal regulation. The second option is investment-based, in which the banks back the fintech companies through debt, equity, and securitization. The third, and perhaps most valuable, is a technology partnership - the most popular subcategory of this integration being a white-label service offered to the banks.
Most importantly, there’s a track record to validate Medici’s concepts. LendKey has partnered with a number of banks, enlisting its white label cloud-based lending software to deploy over $800 million to more than 35,000 borrowers. LQD has used its underwriting and risk management software, LQD Matrix, to expand its name as a nationally-renowned lender. Akouba Credit has used its loan-automation platform to create a better customer experience for the members of Metropolitan Capital. And the list goes on and on.
The emergence of fintech companies by no means suggests the destruction of traditional banking as each side provides added value to the process that the other may lack. Efficiency, however complex it may seem, is inherently about providing the largest amount of value for the highest number of people. A partnership between fintech companies and banks is just that – an economically competent advancement in an industry that could use a revamp.