The premise behind our Back to Basics Blog for the last 24 weeks has been to write about old and existing practices and processes in the consumer finance industry that may have been overlooked by management. So, today's topic—“Fintech”—may seem a bit out of place. But, it is not, as I will explain. First, let me define what I am talking about.
“Fintech” has become the buzzword used in financial circles over the past few years to discuss technology and its impact on the financial services industry. The term describes any kind of technological innovation used to support or provide financial services to customers. So-called “Fintech companies” are those businesses (often start-ups) that use technology to make financial services more readily available to customers.
Regulators have watched with some trepidation about the rapid movement of the new Fintech companies into traditional installment lending. An example of a Fintech innovation that has regulators concerned is the so called “smart contract” which uses a computer program often with blockchain technology to automatically advance funds to borrowers who have what we call in the industry, “availability.” (You may want to Google “blockchain.”) Another example is the Fintech company that promotes the use of Cryptocurrency for payment— something indeed scary.
In reality, traditional installment lenders have been engaged in Fintech for years. We started with the use of computer software programs to calculate APRs and complete the TILA federal box for us many years ago. And, now we have new applications that allow us to make loans via smartphones, and to take payments with ever more sophisticated technologies.
Fintech is nothing but a 21st Century name given to technological advances in providing financial services and products to our customers. While its start may have been in the provision of back-office services, Fintech is today the name given to the application of technology that may lead the industry to machine learning, artificial intelligence, predictive behavioral analytics and data-driven marketing, that will take the credit decisioning work away from credit managers and put the decision in the hands of computer programs. Oh, wait a minute—that is where we are today with credit scoring programs!
Practice Pointer: Beware the Luddites. Keep up with technological improvements notwithstanding that they may be called “Fintech.”