The answer is pretty simple. These new FinTech disruptors promise to cut costs and improve the quality of financial services. But that’s not so difficult to do, given what they are trying to replace – traditional brick and mortar banks which have branch networks, prime locations, legacy technology and huge staff to support the business all add costs.
While these new disruptors have very little of this overhead, there is another very compelling reason why this sector is attractive. This is one of dis-intermediation. We used to go to banks for all our financial transactions. Whether we wanted to send money, apply for a mortgage, or borrow money – we would go to a bank.
These new FinTech disruptors now provide specialized services for each of these functions – sending money (Payments); applying for a mortgage (Lending Tree) or borrowing money (Lending Circle). What they have in common is that these are specific functions with low overhead – think of them as the Apple App Store of the financial services world.
Will they succeed? Only time will tell. But traditional brick and mortar banks are taking heed, and even investing in their own innovative start-ups. One thing is for sure – the FinTech market is red hot right now!