How Fintech Startups Are Replacing the Old Traditional Lending System – Gaurav Anand

FinTech moves towards a banking license sooner or later and can be a huge market for loans and investments.

Technology and innovation are embedded in various industries. The financial sector has remained unchanged for a long time. The emergence of FinTech companies has led to a great breakthrough in the financial system. These are the companies that use technology for payments, banking, data collection, valuation and market analysis. In 2020, FinTech investment grew by $ 135.7 billion, or 2.4 times after 2019. The digital fintech banking trend has threatened the old banking system.

SMEs remain in the backend when it comes to traditional bank loan approvals. Traditional banks normally reject risky and small businesses, but there is a need to support these small and medium businesses for the economy to recover from the pandemic. Two thirds of the population are employed by these SMEs. FinTech has taken the approach of providing solutions to issues such as incompatible maturity and leverage. They connect borrowers and investors instead of short-term deposits and long-term assets. FinTech startups have become a quick way for investors and borrowers to get more affordable credit and more rewarding investing.

Why is FinTech better?

Customer service and satisfaction

The customer approach and rapid services have increased the clientele of these start-ups. Companies follow different methods of risk analysis and don’t just stick to credit rating. The risk assessment approach for SMEs involves social media reviews and the use of logistics forms. The use of AI and machine learning algorithms helps analyze consumer credit and financial crises. Start-ups offer more stable and less time-consuming solutions to SMEs. Millennials who connect more to the Internet are more attracted to FinTech and its service than to banks.


Digitization has helped create a more geographically independent solution for the consumer. Documents, images, videos and audios converted to digital format facilitate access to information. Digital images are binary numbers that create an impression of you online. The electronic sign or the personal stamp can be part of the digitization. The similarity of the two systems includes personal loans, business loans and other financial services to their customers. Online authorization helps to create a safe and secure platform.

Online and remote installation

The convenience of getting a loan with just a few clicks, reminders, alerts and updates by phone or message and 24/7 connectivity made the experience very smooth. All the processes are carried out via the cloud and the information is available remotely. The information is easily accessible. Digitization and software integration allow low cost operation.

The main source of income for these FinTech companies is not interest income but transaction fees.

Innovative idea

There are fewer regulations and rules because it is a newly emerging industry and therefore less restrictions opens the way for innovation and creativity. Small businesses struggling to get financing face a financing gap of more than $ 2 trillion around the world. The risk associated with loan approval is complex and the interest rate is too high with additional hidden charges. FinTech has been a blessing for these SMEs. They offer loans and finance at low or no interest rates with minimal additional fees.

The post-Covid era

Covid and the foreclosure have bankrupted many businesses and this is creating a bad credit rating. Banks are reluctant to approve money for these risky and less systematic ventures. Although the government is bringing new policies and regimes to finance these SMEs. The gap is still very high. FinTech, as the amalgamation of finance and technology, has emerged as a powerful business model.

The convenience and benefits of FinTech services are making a big wave of replacement for the old traditional banking system. FinTech provides peer-to-peer lending, merchant and e-commerce finance, online supplies, and trade finance. The boom has created a lot of start-ups to create development and growth in this sector.

Association of risk with FinTech

It is considered risky to be involved with these companies because the system lacks oversight and regulation. There is a definite need for appropriate authorities and laws in the money lending process. Bad credit scores lead to underpaid premiums and overburdened consumers. The money-recovery method can lead to violence and aggressive methods without proper supervision.

FinTech, a promising company

New FinTech companies earned a third of the new revenue that was a loss for traditional banks. It has become a promising market with more and more start-ups and customers. Many giant companies have become more than just a payment business and have converted to banking system integration with licenses from small finance banks.

By law, fewer practices are illegal, but a large financial industry falls outside of any jurisdiction that helps FinTechs thrive in the finance department. The only limiting factor is the withholding of money deposits which is not allowed. Bank as a Service (BaaS) is emerging as a new concept in which banks collaborate with FinTech companies for mobile delivery and full-time customer service.

If FinTech gets the license from the bank, it can replace the banking system with some tweaks and modifications. The last two years have been profitable for the FinTech company which wants to enter the banking system. The traditional banking system lacks the technology and services offered by FinTech. FinTech companies manage loans, investments, insurance policies and transaction facilities. Large departments engage customers more.

Banks try to partner or collaborate with FinTech companies knowing how it can affect their business. FinTech moves towards a banking license sooner or later and can be a huge market for loans and investments.

Final thoughts

The FinTech system is really good and reliable. Online availability, easy money approval, fast transactions, and modern risk analysis have made it appealing. SMEs in urgent need of liquidity and financing see these businesses as blessings. Less paperwork, flexibility in submitting premiums, lower interest rates, and no guarantees are all customer-centric features. The concept of keeping the customer benefits in mind impresses the consumer and a big change from banking has been observed. The need for urgent small loans increased after the pandemic and the lockdown.

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