It’s not hard to call alternative lenders “disruptive,” or to cast them as either competitors or symbiotic partners to the traditional branch-based world of banking. Throw buzzwords around as you may, what are the real-world improvements that alternative lenders have provided not just for fintech-savvy investors and bank execs, but for clients?
The competition (and, increasingly, collaboration) between alternative or fintech lenders and banks has a generous benefit to the public. This is, to some extent, not a huge surprise: any economist will tell you that a diverse competitive landscape is vital for development and dispersion of better products among the population.
After the financial downturn of the late 2000s, major banks were heavily pressured while many smaller local financial institutions were forced to shut down completely. This, along with the 2010 Dodd-Frank legislation which imposed further lending restrictions, led to a considerable rise in the effective time between loan applications and actual disbursements. This was a problem that alternative lenders helped to reverse.
The ability to turn loans around more rapidly in a constrained climate of cash availability helped to power the growth of many new business developments, especially small businesses. In fact, small business lending hit a post-recession high in 2017, according to analysts. The ability of these new-growth ventures to endure past their early development stages has been of great value in restoring job growth and economic stability on a wider scale.
Aside from the assertion that a more competitive banking sector is, generally speaking, a healthier one, the rise of alternative lenders has put the focus on agility in process and practice. Financial services are able to tune their service delivery much more rapidly according to the wealth of data insights they can now gather with the assistance of fintech powered tools. This means new client-focused solutions can be prototyped and deployed with much less risk.
One of the criticisms that is occasionally levelled at the alternative banking sector is that it alienates those clients who are not on the bleeding edge of digital and mobile savvy. While online and mobile platforms (such as those used for payment processing) do make up a significant portion of new fintech development, alternative banking goes beyond the realm of the uberconnected. In the current marketplace, the combination of traditional bank service portals with alternative-style data solutions allows “legacy” bank customers to experience the same standard and model of service that they may already be used to – physical branches, kiosks, chequebooks – but with the added convenience of digitally powered back end systems.
These are just a few of the ways that the “disruptive” alternative lending sector may actually be benefiting the kind of banking that you may be traditionally familiar with. Perhaps it is time to shift the narrative away from challenge and disruption and toward one in which new service principles can benefit the widest possible range of banking clients.
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