While alternative lenders are sometimes competitors to banks, the predominant business model is highly reliant on banks to originate and, in many cases, fund their loans. In general, alternative lenders tend to focus on specific segments in the consumer and small business lending space. These lenders use technology designed to (1) meet customer expectations for increased speed and convenience (e.g., online applications, documentation transfer, quick decisions on loan approval) (2) provide more clarity and convenience on loan extensions (e.g., pricing, terms, borrower identification) (3) broaden customer sourcing and (4) automate loan funding. These segments do not encompass everything that can be considered fintech, but they are among the areas most likely to impact current banking practices and, accordingly, are of particular interest to the Federal Reserve.įintech credit providers (alternative lenders) are nonbank lenders that have developed business models based on innovative uses of the Internet, mobile devices, and data analysis technologies. In addition, this article surveys fintech’s underlying data and technology ecosystem (Figure 1). However, it is clear that the combination of advances in technology, new uses of data, and changes in customer preferences and expectations are likely to create lasting structural changes in financial services.Īt the Federal Reserve, we are often asked two questions about fintech: (1) What is meant by fintech and (2) what is the Federal Reserve doing to understand the impact of these new technologies? This article attempts to answer both questions by providing an overview of four fintech market segments: credit digital payments savings, investments, and personal financial management (PFM) and distributed ledger technology. It is therefore too early to predict fintech’s ultimate impact on the banking system or how traditional financial service providers will adapt. Many fintech areas are still in the early phases of development or are undergoing evolution.
More recently, however, important fintech and banking leaders have focused on partnerships, collaboration, and other relationships among their firms. When the fintech industry began to develop (circa 2007–2013), industry participants and observers emphasized the potential for fintech firms to disrupt traditional banking intermediaries. Banks, investment advisors, and other traditional financial service providers have also begun adopting new technologies by partnering with fintech firms and/or by developing these new technologies in house.
Commonly known as fintech companies, these providers use advances in technology to develop alternative platforms for financial activities, including consumer and small business lending, securities clearing and settlement, and personal financial planning and investing.
Recent technological innovations are resulting in significant changes to the financial services landscape and have led to the rise of certain nontraditional financial services providers. Consumer Compliance Outlook: Third Issue 2016 Fintech for the Consumer Market: An Overviewīy Tim Marder, Fintech Senior Supervisory Analyst, Financial Institution Supervision and Credit Division, Federal Reserve Bank of San Francisco
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