6 Fintech Services That Are Better Than Traditional Banking

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Financial Technology companies or Fintechs are companies that provide online financial services to consumers and businesses. Some Fintechs such as PayPal are well known, but hundreds of other companies have emerged over the last decade and have disrupted the traditional financial service sector. Today, whether you want to open a savings and investment account, transfer money or get a loan, there is a Fintech company that will cater to your needs, generally at a much lower cost than banks. This is mainly because Fintechs incur much lower fixed costs and overhead costs, which enables them to be more profitable. Their services also tend to be much faster, because everything is online-based and processes are often more efficient and lean. Most Fintechs are specialized, but some companies like SoFi offer a complete array of financial services including student loan refinancing, mortgage loans, personal loans, wealth management and life insurance. Below I explain why you should consider dealing with a Fintech rather than a traditional bank.

1.Loans

Banks are very conservative when it comes to lending. In fact, institutions typically only lend money to individuals with high credit ratings and long-lasting businesses with a lot of liquidity. This means that millions of people cannot qualify for bank loans, because they are deemed to risky. Fortunately several Fintech companies have addressed this issue and provide loans to people with a poor or no credit history. Examples are Lending Club, Prosper, Zopa, Lufax, Avant and Kabbage. The first four provide peer-to-peer lending to individuals whereas the last two are lending platforms for individuals and entrepreneurs. Other companies such as Qudian and CommonBond even specialize in student loans and have substantially reduced the cost of education for thousands to people.

2. Money transfers

Bank fees for international and domestic money transfers can be quite high. Among the emerging Fintech companies that have tackled this issue are TransferWise, WorldRemit and Venmo. Blockchain technologies such as Bitcoin and Ethereum are also revolutionizing money transfers and smart contracts for a fraction of their regular cost.

3. Fundraising

One of the earliest and most popular uses of Fintech is crowdfunding. Today there are hundreds of companies that enable you to raise funds for your projects, your business or non-profit endeavours by allowing other individuals to contribute. This system is a great alternative for people whose projects would not interest banks or even microfinance institutions. An exhaustive list of crowdfunding platforms has been provided a while back on this blog.

4. Insurance

Insurance premiums can be quite expensive for people considered high risk by financial institutions. Plus insurance companies often charge a lot of additional costs to clients above the pure risk premium. Moreover, slow and complicated claim processes are common sources of complaints from clients. Among the companies that decided to fix this issue are ZhongAn (Propery & Casualty), Oscar (healthcare), Metromile (auto insurance) and Trov. This last even allows people to insure a wide range of consumer goods typically not covered by traditional insurance companies.

5. Savings and investments

Companies like Tangerine enable you to open a checking or savings account with no monthly fees or transaction fees. Returns on investment funds also tend to be higher because of low management fees. A particularly interesting company is Robinhood, a smartphone app that allows individuals to invest in publicly traded companies and exchange-traded funds listed on U.S. exchanges without paying a commission. Several other companies worth checking out include Wealthfront, Addepar and Nutmeg.

6. Refinancing and debt relief

Refinancing is another important service that Fintechs have managed to offer at a lower rate and with a faster service. Student loan refinancing in particular is a growing need in countries where student debt has reached incontrollable levels. Companies like Earnest and SoFi are helping students and parents lower their interest rate and thus their monthly payments. Finally, for people who are overwhelmed with too much debt, companies like Freedom Debt Relief could help you negotiate a settlement with your creditors.

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1 Comment

  1. Anna

    October 16, 2017 at 6:01 am

    This is good information. I am always looking for other financial options

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