With the rise of technology beginning in the early 2000s, we have encountered an extreme revolution in the finance industry. From banks to brokers to short-term lending operations to car title loan processing and everything else in-between, “fintech” is changing the finance world rapidly.
In this article, we are going to take a look at some of the different ways that the finance industry has collectively been impacted by the changing technology landscape.
The Emergence of Peer-to-Peer Lending
In the days of old, a person who needed a loan would have to drive to their local bank, fill out a credit application, and then hope their banker would give them a great loan at a reasonable rate. In many ways, this put the borrower at the mercy of the lender, and the borrower had to have highly established trust with the bank.
Technology has changed this picture in big ways. Now, there are credit lending facilities online like Prosper, Lending Club, and Lending Tree which will allow any individual to obtain a loan from one of their peers. All that a person seeking a loan through these platforms needs is a good credit score.
In fact, investors can even make loans of their own through these platforms at this time, which has served to create a new investment avenue for retail investors that did not exist before. Leading research news-group Marketwatch has made the argument that all investors should consider peer-to-peer lending as a means of diversification. Certainly, technology has changed much about lending.
Robo-Advisors are the Way of the Future
Before the mid-2000s, no one had ever even heard of a robo-advisor. The idea of having a robot manage your investments using fully automated portfolios seemed utterly ridiculous. Instead, most people were happy to pay the 1-3% annually that their financial advisor charged them in addition to the expense fees required from the funds the advisor bought on behalf of his clients.
Now, technology has changed all that by allowing for the emergence of robo-advisors implemented by firms like Acorns, Betterment, and Wealthfront.
The premise of a robo-advisor is fairly simple. An individual enters their time horizon, yearly income, and risk tolerance levels into the advising software, and the software takes that information and creates an investment plan comprised of index-based investments.
Then, all the individual has to do is set up a recurring bank draft and VOILA!–everyone can be a super-savvy investor! To make it even better, most robo-advisors only charge .25-.50% in annual expenses, making them a far cheaper alternative to a traditional financial advisor.
However, a recent article from CNBC points out that some robo-advisors are now up-selling additional features that may raise the expenses associated with using one. However, they are still a welcome opportunity for investment for many people who are not investment-minded or savvy.
Technology Makes it Easier to Pay Your Friends!
It wasn’t too long ago that Paypal came out. It was one of the first softwares of its kind that would allow individuals to process payments online through a third party without fearing that their payment info would be stolen or that they would have no recourse if the products they purchased did not arrive.
At the time, that was a truly revolutionary software. Even today, the Paypal payments system is integrated into most online shopping centers and various other platforms. However, the Paypal brand has not remained stagnant as technology has continued to evolve.
One of the things that Paypal noticed is that most of the millennial generation is on their phones a large part of the day. So, they decided to create a new app called Venmo. Venmo basically allows anyone to pay their friends and family electronically by phone simply by having the recipient’s phone number.
Truly, this technology has made a huge splash in the mobile phone industry!
Where Do We Go Now?
Yes, technology is causing massive changes to take place in the finance industry on a night-daily basis. Many of these changes are very exciting and are helpful to those that they serve. The only question left, then, is what is coming next?