Traditional banking has been around for a very long time and the practices of the major financial institutions is not significantly different now from a hundred years ago. In this modern day, many individuals and businesses find it extremely difficult to be able to find, and afford the credit and financing that they need. Banks are extremely careful about who they lend to, and are keen not to make the same mistakes that led to the subprime mortgage crisis and subsequent financial collapse of 2008. Additionally they face ever increasing regulatory requirements, which is using an ever larger amount of their budgets, which squeezes their margins further, at the same time that the customer is searching for a better and more innovative service.
Challenges Facing the Banks
A key problem facing banks everywhere, is that most banks and financial institutions, simply aren’t making enough return on investment or return on equity that is demanded by the shareholders. At the same time, the customer is looking for a better level of service than that which the banks are currently providing, especially when it comes to technology. Traditional financial institutions are also facing increased competition from financial technology companies, known as FinTech, with some suggestions predicting such firms will take more than a quarter of the market within the next five years.
What is FinTech?
FinTech companies are normally startup firms who use software to provide financial services and are becoming increasingly popular. FinTech firms aim to compete with traditional financing, by delivering innovative financial solutions through the use of smartphones for mobile banking, and new financial offerings such as crypto currency. It is causing headaches for the banks, who are slow to adapt to the changes in the marketplace. It isn’t just the introduction of technology, but also for the banking culture and their traditional ways of operating. Blockchain and disruptive ledger technologies are offering the world of finance an opportunity to transform the way financial services firms do business. Banks who do not understand and adopt such technologies, face serious risks to their existing business models.
Alternative Financing Options
The financial services marketplace also has a newer and more innovative bunch of companies, such as Max Funding, who compete with the traditional firms by offering access to a range of swift and simple funding solutions, which are very popular with the small to medium business enterprise, who often have the most trouble securing finance from the banks, especially when the money is needed swiftly. If a sudden opportunity presents itself, the last thing a small business needs is for the opportunity to go begging because it was going to take weeks for a bank to approve a loan.
Banks tend to look at applications in a traditional way and do not offer the same level of innovation of some of their newer rivals. Every business is slightly different from the next one and has different financing requirements, which often don’t fit nicely into the brackets that the bank operates by. Hence, firms who can tailor make a financial product based upon a company’s specific needs, swiftly are also leading to a new era in financing.