Thought Leadership

Fintechs Have an Unfair Advantage: Or Do They?

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June 29, 2018
Fintechs Have an Unfair Advantage: Or Do They?
By Bryan Adler

Fintech companies undeniably have a big advantage over community financial institutions (CFIs), particularly in lending, payments, and wealth management. In the last few years, they have established powerful competitive forces to banks and credit unions because they are able to use loopholes in regulations, compliance, and routine audits due to the nature of their new industry.

Essentially, these fintechs are glossy front-ends with enhanced user experiences, leaving the hard regulatory restrictions and data collection costs to the banks. It’s a term called regulatory arbitrage and they’ve seemed to have mastered the model pretty well.

So why aren’t fintech companies heavily regulated like financial institutions?

The fintech market is a relatively new sector that many regulators have been trying to keep up with. Fintechs that partner with banks have been able to use the ‘rent-a-charter’ model where banks provide services and financing behind fintechs. Ultimately fintechs don’t have to deal with as much regulatory restrictions due to regulations that have not been initiated yet. And as a result, they are able to offer a more attractive product.

Financial technology companies have experienced amazing growth in recent months, and with that, a number of regulations and policies have been released which will level the playing field a little better. However, even with new regulations, banks are still finding it extremely difficult to compete with fintech companies when their central focus is occupied by regulations and compliance.

In a new study conducted by PricewaterhouseCoopers, it states that large financial institutions around the world will lose up to 24 percent of their revenues to financial technology companies in the next five years. Personal loans in particular are most at risk.

So what are banks to do in an environment like this?

Banks operate in a heavily regulated, policy strict, and compliance centric environment while fintechs are able to leverage less regulations and user friendly experience to attract growing startups – true. The biggest value in fintech companies come from their quicker access to money, intuitive front-end interfaces, and easy online application process. Most importantly, it is the speed at which companies are able to access funds.

But imagine there was a technological service that allowed banks to give their customers this same experience while staying compliant with regulations. Fintechs would no longer have the advantage, and banks would now be competing on a more level playing field.

Luckily for community banks, and financial institutions around the country, Vetter is there to help even the competition. The digital lending platform is dedicated to empowering its partners with a workspace that originates loans, facilitates speedy closings, and complies with industry regulations.  

Vetter offers a user friendly online loan application for their partnering institutions with easy, no-cost data collection features. Our partners have been able to focus their time and energy on managing deal flows and increasing their loan volume, without spending the annual average of $500,000 that CFIs spend on data collection.

Banks are always looking to increase their loan volume and provide a better customer experience. With Vetter, banks have revolutionized the potential volume of loans and approval speeds with the referral network.

Referral Network: Banks can refer any loan they are not qualified to service on the referral network, and anyone who is part of the network can see the loan and approve it from their platform. The bank who referred the loan automatically earns a referral fee. Sign up to Vetter’s referral network, increase your loan volume and monetize on every loan : Referral Network Sign Up Page.

So now, banks can crush the unfair advantage taken by fintechs. CFIs can use their own glossy front-ends like Vetter that are automatically compliant, cut costs on data collection, and intuitive for customer needs.

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