Why Fintech Companies and Banks Are Perfect Together

Luke Johnson
Aug 9, 2017 · 2 min read

When you hear the word “fintech,” you probably associate it with the concept of disruption. Whether that’s a subconscious hope that traditional finance is uprooted, or a reflection of the image that most media outlets have painted; I’m here to tell you otherwise.

The New Age of Wall Street

Finance has already been innovated on virtually all fronts, and there’s still huge potential for developers and programmers to progress the industry into a completely different direction. But there are a few key factors that will keep traditional banking alive: security, flexibility, and the benefit of integration.

Medici’s White Paper illustrates the value in Fintech companies serving as partners to traditional institutions rather than competitors. “For banks, these new lending fintech companies enable them to provide a better customer experience, increase revenue by providing more loans and expand their margin by reducing their cost per loan. For fintech, banks provide a loyal customer base, vast financial services experience to learn from, and are familiar with the regulatory landscape.”

The White Paper also suggests that the partnership between the two comes in 3 potential forms of integration. The first option is a business partnership in which fintech companies deal with the customer acquisition and all of the front-facing interaction between the borrowers and the banks — effectively serving as digitized brokers. In this scenario, the banks are still responsible for the underwriting, and the upkeep of all of the back-end logistics that require knowledge of federal regulation. The second option is investment-based, in which the banks back the fintech companies through debt, equity, and securitization. The third, and perhaps most valuable, is a technology partnership — the most popular subcategory of this integration being a white-label service offered to the banks.

Most importantly, there’s a track record to validate Medici’s concepts. LendKey has partnered with a number of banks, enlisting its white label cloud-based lending software to deploy over $800 million to more than 35,000 borrowers. LQD has used its underwriting and risk management software, LQD Matrix, to expand its name as a nationally-renowned lender. Akouba Credit has used its loan-automation platform to create a better customer experience for the members of Metropolitan Capital. And the list goes on and on.

In conclusion, the existence of fintech companies by no means suggests the destruction of banks, and vice versa. Both instruments provide value to the process that the other lacks. Efficiency, however complex it may seem, is inherently about providing the largest amount of value for the highest number of people. A partnership between fintech companies and banks is just that — an economically competent advancement in an industry that could use a revamp.

Originally published on www.plattpointe.com

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