Small Banks and FinTech

The financial technology, or FinTech, industry has been spreading over the course of the past decade, and it is only getting bigger. Using technology to organize and control finance used to be just an idea, but is now used by big banks and Wall Street firms. Banks have even begun investing in FinTech startups in order to get ahead of competitors, by receiving the latest innovative product before anybody else. Unfortunately, this explosion of FinTech in big banks and investment firms has made smaller companies struggle. However, that is beginning to change.

Startup companies focused on FinTech are now seeking out smaller community banks that are thinking about going national. The banks want to become relevant in the digital age, and the startup companies want more business. Technically, this arrangement works for everyone. It is also arriving at a time in which the Federal Reserve is making decisions that will detrimentally affect small banks. The Federal Reserve wants to work on keeping interest rates low, but small banks focus mostly on products with interest. The FinTech revolution in the small banking industry could be exactly what these companies need to stay afloat.

The banks are partnering with startup companies, and working to get all of their services online. Bank transactions have gone online, with things like Chase Quickpay, however not much else having to do with banking has been made digital. Loans have the ability to be taken over by technology, for example, as is the ability to outsource different company functions, like lending.

Online lending especially has become a hot topic for small banks. It will allow them to give a broad array of loans to people in all sorts of locations, which can help them make more money in the long run, and further legitimize their company. Of course, this will not be an easy market to tap into, as it has become an option for small banks all over the world. There is, therefore, a large amount of competition.

I am unsure how startup companies partnering with small banks to create more digital loans processes will change the FinTech industry. Many larger banks and investment firms put their money into startups because they want brand new products, however the small banks want to do something that is already being done. It calls into question if digital lending will bring more business to these small banks at all. Either way, I am interested to see how partnering with startups alters the future of smaller banks.

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