Fintech and virtual banks share a common DNA. They’re both disruptive to the standard model, seeking better ways to provide common financial services. As such, a virtual bank finds the perfect bedfellow in the advances coming out of the fintech sector.
Fintech or financial technology companies are racing to uncouple specific financial services from the monolithic institutions that previously offered them, and then drastically reduce the associated costs. Their technological solutions often use custom algorithms, machine learning, and purpose-built software to create a better customer experience.
In this article, Rory Brown, Managing Partner of Nicklaus Brown & Co., reveals how much of the groundbreaking technology that will further distinguish virtual banking from the standard brick and mortar experience will come from forward-thinking fintech companies.
Upstart is a nascent service that uses data mining, machine learning, and pattern recognition to find novel, unexpected ways of judging a person’s creditworthiness. The indicators they’re finding may be more reliable than the standard FICO credit score, are easier to parse and process, and aren’t dependant on private organizations to maintain the data.
Virtual banks could use these insights to significantly speed the application process, as well as reduce needed due diligence when considering whether to originate a loan. Fast, easy, online home loans are rapidly becoming a reality. Banks like Ally are already offering this and other services.
Stock and other investment trading services are already on their second round of disruption. Traditional trading practices were irrevocably altered when online trading platforms like e-Trade started. Today, fintech companies are further refining what’s possible in the space.
Startups like Betterment take advantage of advances in AI to create guided, intelligent investment strategies tailored to an individual’s financial situation, goals, and risk tolerance, without human intervention.
Robinhood is an investment app that’s pioneering commission-free brokerage services, enabled by cost-saving technology. Online brokerage services are a natural extension of the virtual bank model, so it’s likely that the technological underpinnings of services like Robinhood and Betterment will slowly percolate into virtual banking’s raft of services.
Blockchain underlies all cryptocurrencies. It offers absolute transaction safety and a fully traceable, entirely immutable, open history for every transaction that has ever occurred. As a result, fintech companies are experimenting with blockchain technology in a number of different domains, and virtual banks stand to benefit.
Blockchains are decentralized, which drastically reduces the costs associated with maintaining records and policing the system. This means virtual banks can further erode the hold large, entrenched interests have on the industry by creating a means for extremely low-cost, highly-secure online banking.
Fintech and virtual banks are bound together in a lockstep spiral of cost savings and great consumer choice. This relationship is sure to deepen over the coming years.
About: Mr. Rory Brown has focused on financial technology and investment management for 30+ years. Rory Brown Co-Founded one of the world’s first Internet Banks and writes extensively about the industry.