If you wanted to build a lucrative startup, chances are you would go into fintech. Fintech refers to “financial technology,” a term that differentiates modern companies from traditional financial institutions. Whereas the well-known behemoths are beginning to get a reputation as dinosaurs, fintech companies by definition innovate, taking technology forward rather than racing to keep up.
There is a reason that fintech companies are so successful. Individuals are fed up with banks and their bureaucracy. They want to make transactions seamlessly and immediately, rather than filling out paperwork and waiting days for a response.
Furthermore, fintech companies offer products that cater to people who the big banks fail over and over again, including those with bad credit, modern business ideas, and international contracts. All of which may be why you are considering going to a fintech company for a loan.
But is it a good idea to get a loan from a fintech company that does not have a decades’ long track record? Here are the pros and cons you need to consider.
Pro: Personal products
Most fintech companies specialize in a particular niche. Unlike big banks, which try to cater to as many people as possible, fintech companies offer products that are suited to a much more specific subset. These products are therefore more personal and geared towards your circumstances.
A fintech company may, for example, offer small business loans for women, taking into account the particular challenges women face when starting a business. While traditional banks and lenders will see these challenges as risk factors, a specialized fintech company will create solutions that approach them as key traits of this business experience.
Con: Shorter track records
The downside to these personalized products is that an alternative approach has a much shorter track record than those taken by traditional institutions. These institutions have survived this long for a reason. Aside from government bailouts when things go wrong, their decision-making is based on decades of data and a certain amount of prudence. A product that seems great at first might turn out to be far less useful than expected.
Pro: Ease of use
Fintech companies are so enticing because they provide products that are immediate and convenient. But the benefits of this go further than mere convenience. Simplicity is far easier for the average person to understand when it comes to finance. While traditional institutions tend to bog lenders down with jargon and small print, the misunderstanding of which can lead to major financial downfall, fintech companies bring in customers by providing a clear vision of what to expect and what can go wrong.
Con: Complacency breeds deceit
Unfortunately, the simplicity of the options offered by fintech companies can be a means of making potential clients complacent, before hitting them with loopholes and small print they managed to hide. Some people take the endless terms of bank loans much more seriously, and won’t commit without a thorough understanding, but will get drawn in by attractive posturing from a fintech company. There are even some downright scams that trick clients into sending money to thieves. That said, you can find out whether a fintech company is trying to deceive you with a bit of research, including an extensive sampling of customer reviews.
Pro: Attention
Fintech companies are generally in the process of buidlign or strengthening their reputations. They need customers to connect with their products and feel cared for. Furthermore, they have a far smaller base than big banks, and can give you far more personal attention. Rather than just being another number in the system, borrowing from a fintech company is the start of a relationship, that will be nurtured.
Con: Longevity
On the other hand, being a faceless part of a massive system has its advantages. Big banks have longevity to thank for their enormous customer bases. You know that they are likely to be around for a while, tending to your needs. Fintech companies, however, can come and go in the blink of an eye. Something that seems like a great concept might be destroyed by mismanagement, at the expense of its enthusiastic customer base.
Should I borrow from a fintech company?
Borrowing from a fintech company is an excellent way to get personalized products, take advantage of innovation, and receive greater attention. However, they do not have the same longevity and track records that banks do, and their lack of a reputation may make you wary. Deciding whether to borrow from a fintech company should take this all into account. Make your choice with care, and don’t write off the alternatives from the start.