Private Lenders: Fintech Won’t Replace Your Job Anytime Soon

The finance industry has always been in a state of flux. Just like any industry, as time marches on. Sure, the basics are still there, but it has evolved, because of people. As human beings in the world of lending, many fear that Fintech is rapidly coming for their jobs. The idea being, Fintech will replace the need for human interaction and decision making in the finance and lending industry.

Simply not true.

What Is Fintech?

Fintech is short for Financial Technology. Less broadly, Fintech is any technological innovation in financial services. The term describes any innovation related to business transactions. On a more practical level for consumers and business owners, Fintech refers to any company which uses technology to deliver and improve financial services to consumers and commercial enterprises.

There are tons of Fintech companies out there competing for businesses and their money, in many cases, by providing a faster solution to applying for loans and getting the needed funding. You’ve probably heard of companies such as Lending Club, Kabbage, SoFi, and Robinhood. Those companies might even accurately describe Fintech as ‘computer lending’.

Some of the Benefits of Fintech:

  • AI (Artificial Intelligence) and computer algorithms speed the decision process
  • Funds can be obtained more quickly
  • The processes are mostly automated for the user (by way of computer or mobile device)

The Average Fintech Scenario

A business owner can sign up and log in to a Fintech company’s process that then evaluates credit-worthiness of borrowers based on complex data analysis from various parameters; including financial history, social media data, demographics, educational background, zip code, and more.

Then, based on AI and an algorithm, the ‘program’ or ‘software’ determines whether or not to provide the loan, determine the interest rates, and the duration of the loan. Money is dispersed quickly and is transferred to the borrower’s bank account.

Sounds Great: But Is It?

While Fintech has seen much growth, in some cases by leaps and bounds, one segment that hasn’t grown very keen on it is small business. Why? Mostly because Fintech software is apt to fund more and more riskier businesses, thus driving up interest rates. Plus, there are bigger issues at stake that are going to have a future effect on Fintech.

AI Private Lenders: Fintech Won’t Replace Your Job Anytime Soon

The Bigger Issues and Cases Against the Future of Fintech

Drawback #1: The Human Missing Link

With Fintech, more riskier businesses are being funded based on data, not the human element that traditional banks or human alternative lenders can provide. Think about the traditional way banks give loans, one being able to give credit on the inclination of trust based on a professional relationship. Remember, the information Fintech uses is simply data points that don’t tell the whole story.

Much of what makes Fintech work is based on the ‘Black Box’ model and in real-world situations, the ‘Black Box’ model doesn’t take into account the intricacies of a person, a business, or the long-term risk. So while Fintech provides short-term solutions (based on speed and ease of use), the long term benefits aren’t always there for the lender or the borrower.

In other words, programs and algorithms can’t think out of this proverbial ‘box’.

The algorithms of Fintech can’t innovate or think up new ideas. Forget about engaging in human professional skills such as negotiating terms, building professional relationships, and protecting the customer. They’re also built on linear logic, unlike a human (being) lender.

The Black Box: Opened

Fintech technology relies on predictive modeling. By using AI and predictive modeling, your data runs through a machine that then creates lead scoring, segmentation, or an ideal customer profile. But, the computer won’t be able to tell you how it came to the conclusion. And that seems to be a huge problem. In marketing, we use Analytics to tell us a story, not the story. We would never blindly follow data. It takes a professional analytics expert to distill the data into behavioral stories and vignettes for future marketing efforts.

The Black Box issue basically boils down to the massive problem of mistranslated data. This is why the element of having people in the consideration process is key.

Drawback #2: Regulations Are Weak and That Will Change

Traditional lenders already know: regulations make it somewhat of a minefield to navigate when it comes to doling out money to businesses. This is a real-world fact that can influence the outcome of a loan application. Fintech is innovative, in a sense, but not as innovative as a human when it comes to molding loans around real-life regulations; however, Fintech isn’t regulated as much as the so-called ‘traditional’ means of dispersing loans. Not yet, at least. That creates a two-fold problem:

  • Human loan officers and lenders can traverse financial regulations using human innovation
  • Fintech isn’t as heavily regulated, yet. In other words, while Fintech can capitalize on being under-regulated, as soon as the government steps in with stiffer rules, Fintech is going to take a hit

Drawback #3: The Threat of the New Internet Bubble

The Internet bubble of the 1990s burst after more than five years of steady market growth. Market growth peaked in March of 2000, but the collapse of many startup internet companies, along with several interest rate increases by the Federal Reserve, led to an economic recession precipitated by a rapid decline in the Nasdaq. Human lenders don’t have to worry much about this when it comes to sticking to business relationships made in the real world.

And, know that venture capitalists who provide some of the funding that Fintech loans are often looking for that ‘hockey stick’ growth (massive jumps from a flat line). This can cause less innovation with the technology and/or cause a Fintech company to take on too many risks that can cause it to fold under the pressure.

Drawback #4: Hacking and Data Breaches — Oh My!

We live in an anxious world. Business owners, especially. Machines and computers can’t calm people down and the dark shadow of the web, in terms of hackers and finance, are out there. Machines rely on data and data can be breached. When your financial data is breached, there’s very little you can do but fight the good fight to get your money, personal data, and financial future back. Therefore, our anxious world is not ready for the possibility of data breaches that can spell the end of a business’ future; especially small businesses.

robot-boss Private Lenders: Fintech Won’t Replace Your Job Anytime Soon

How Do I Compete With Fintech Today?

If we break Fintech down into 3 descriptors, we come up with the following:

1. Ease of use
2. Speed
3. Customer Service

As a human lender in a world of ‘robot’ lenders, you have the opportunity, right now, to compete against Fintech by focusing on the 3 descriptors above. If you can make the loan process as easy as possible, pay close attention to your customers with speed in mind, and be the best at customer relations, you’ve got something that Fintech doesn’t: human trust and an attractive process that beats your other human competition.

The Missing Link: People Are Savvy and Addicted to Technology

Just like Facebook has made staying in touch with people easier or Netflix made watching television a new experience, people are in love with their digital technology. They use it for practically everything in their lives; so how do you compete with Fintech’s technological attractiveness? Be findable, useful and valuable online. But how?

  • Be easily and quickly findable online (search)
  • Your website experience has to be working, seamless, and valued by users
  • Be transparent online
  • Fix problems online immediately
  • Personalize experiences (such as emails)
  • Utilize testimonials
  • Provide case studies
  • Be social, relevant, and ever-present on your social profiles
  • Brand your About page with human elements (let people know you’re a real person)
  • Have clear and consistent contact information
  • Have a privacy policy
  • Use HTTPS on your website
  • Market to your audience via SEO, PPC, Social Media Marketing, Content Marketing, and Email Marketing

The Lessons of Days Gone By Will Sustain You

It’s not that far back in American history that we can see we came from a strong farming industry. As the Industrial Revolution cruised through America and farming became more and more mechanized, it didn’t kill off the working class.

Instead, we innovated and our collective lives have improved greatly. Fintech won’t take away your livelihood as a human, private lender. Instead, if you can heavily borrow from the benefits of Fintech and incorporate them into your own offline processes, your job will not only be secure, but successful.