The Disruption of Consumer Finance and the Banking Sector

Would you ever hear of financial democracy? No, me personally neither. But you’ve likely heard or read tales about the increasing inequality in wealth distribution. Inside my view, the key factor that contributed to our financial system crash was not determined by specific misbehaving, but rather by the failure of the system itself-where decision electric power is centralized within the series of institutions. about fintech
Due to the disturbed trust marriage between savers and the financial sector, individuals now require and expect to be more in control of their financial resources. In other words, we want to be the master of our own capital and logically so. This change in consumer preferences has deep significance for the financial sector, as individuals will benefit highly-specialized companies which can assure a higher level of transparency and decision power. 

The industry is experiencing a major switch in conditions of “unbundling” (as defined by Sally Wilson in this video), moving away from the centralization of old. Today, only a few businesses are fully part of this movement. But they are, in my view, disrupting the industry. Extra interestingly, these companies are just the pioneers of the movement-and essential the FinTech sector is very “hot” at the moment.

Today, let’s discuss examples of these pioneers I pointed out, as they embody the movement of increased control and transparency in modern-day financial climate. I deliberately chose to give attention to FinTech consumer-driven solution, which provides the major impact on the banking sector today.

1) Wealth / Purchase management

Investment management is a key activity for financial institutions. However, until you are a top-tier customer with several million entrusted to the firm, it’s essentially impossible to track or control how your money has been managed. Especially after the massive shocks some institutions had, savers are increasingly concerned with their money and prefer to be in charge of investment decisions.

That’s probably one of the reasons why companies like WealthFront in the U. S., Nutmeg in britain and Stockpot in AUS are gaining large market consensus. These companies not only lowered the barrier to entry (as you just join on their website), but also assure lower transaction & management fees (thanks to a leaner structure) as well as better, timely transparency and control of the investment strategy. Virtually all importantly, they feature savers these benefits without the need of them to exert any effort in the decision making process. Basically, those institutions reduce the trouble of making a savvy choice by walking you through and assisting your decisions, getting away of the relationship, the user, fully in demand.

2) Lending

There are many individuals and small businesses demanding micro lending options. On the one hands, financial institutions face overexposure to market and standard risk, and on the other hand, individuals want to maintain full charge of the way their capital has been allocated. Taking this into consideration, it is no surprise that companies like (the now public) LendingClub in the US or Funding Circle in UK are experiencing exponential progress. It may seem to be like a non-overlapping market for banks, but it will actually commence to harm the traditional banking sector at some point.

3) On the net Stock Trading

Basically: making the investment in stock-listed companies available to the masses. This is debatable, but extremely disrupting and in line with the new taste of investors for being the arbitrators of their own money. Although it’s taking the appearance of online video gaming, online investment platforms are addressing such customers that banks serve and, just like for lending, it will increasingly affect their business. A natural progression of the movement will be the creation of your online marketplace for privately-held stocks, featuring lower liquidity, lower regulatory requirements for the companies and higher built-in risk. Some initiatives in the EU as well as the US seem to be to point this aptness is near.

4) Collection of savings and private finance

How was the banking sector created in the first place? Basic: collection of capital in return for home finance loan and allocation of the same capital for a higher average rate of interest.