It’s hard to skim newsfeeds and industry websites without seeing any mention of fintech these days. In fact, it might be nearly impossible. Financial technology, or “fintech” for short, has been the talk of the town in the financial sector, where questions about its regulatory landscape, efficacy and news of up-and-coming startups have prompted a lively dialogue.
Conjecture aside, we do know one thing for certain —
Banking, like nearly every other industry, will continue to skew more and more digital as consumers opt for the convenience offered through smartphones and digital apps. So in this sense, the advent of fintech isn’t surprising; it represents a logical progression towards data-centered services.
The potential of fintech and its staying power depends on whom you ask. Fintech has been the recipient of both reverent praise and sharp criticism. I want to address the latter.
An article that ran last month in Wired (The Future of Banking Is. . . You’re Broke) takes a swing at the fintech industry, saying neobanks are poised to happily profit off of the low-income consumers they claim to serve.
From the November 14 piece:
“But all of (these neobanks) say, explicitly or by intimation, that they’re mission driven. Their mission is the hot mess that is your finances.”
“… So what better fix than to slap a slick veneer of tech over basic banking services, push the ouroboros paycheck cycle up by a couple of days, offer some basic budgeting tools and call it a revolution in consumer banking?”
The article goes on to compare neobanks to gig-economy companies like Uber, saying that all the hype that surrounded these business models didn’t add up. It also poses worry that at the end of the day, these neobanks will be purchased by bigger banks and ultimately be stuck in the same company they were trying to distinguish themselves from.
This is fair – fintech and neobanks are young enough that their precise fate has yet to be determined. And I also commend the author for looking out for consumers.
However, the overarching view that this new technology is a facade meant to empty the pockets of the less fortunate is far too cynical and generalized.
Fintech – when it’s done responsibly – does indeed look to help, instead of hurt consumers.
Take Gusto, for example.
Gusto is a payroll, health insurance, and benefits platform that offers a flexible option for employees to access critical funds before payday. Through Gusto, workers can take out up to half of their estimated earned wages or $1,000, whichever is less.
Gusto’s approach helps to solve the short-term liquidity needs for employees at small businesses without the exorbitant fees that can be charged by payday lenders. In my estimation, Gusto’s offering is a less-expensive, much-needed alternative to traditional small-dollar lending, not just a “slick veneer.”
Or what about Self, the Austin-based fintech? Self offers credit-building loans that help consumers improve their credit history.
Through Self, clients can apply for a loan – often between $500 and $1,700 – that is moved into a certificate of deposit. Once a borrower is approved for the loan, he or she makes monthly payments until the money is paid back. At the end of the term the certificate of deposit unlocks and the customer gets the funds (minus fees and interest). All monthly payments are reported to three major credit bureaus.
To date, Self says it has increased the credit score of more than 300,000 people.
The Wired article refers to “monetizing brokenness.” There will always be those looking to profit off of someone else’s misfortune. This is the sad truth of business. But to cast a blanket statement on the entirety of the neobank or fintech landscape is unfair.
People across the country are, in fact, struggling to make ends meet. The Financial Health Network estimates that only about three out of 10 Americans are financially healthy, meaning they don’t struggle to pay bills or save.
Does that mean that business as usual should continue?
Should the financial sector remain static, instead of trying to develop a solution? I don’t think so.
The fact that certain fintechs are trying to lessen the blow for low-income consumers is a start.
And if there is some panacea to completely eradicate the financial woes of the single mother, or the student working their way through college, I’m all ears.
Fintech is a nascent phenomenon that has yet to take its final form. But to cast it only as a cash-hungry entity with no care for consumers isn’t fair.