Lack of trust in banks creates opportunity for fintech
LACK of trust in the financial sector will create an opportunity for fintech companies, according to a leading academic.
Robert Wardrop, executive director of the Cambridge Centre for Alternative Finance at Cambridge Judge Business School, argues that the increasing digitalisation of the broader economy and the fact that technology is more trusted than finance today presents a big challenge for conventional banks.
“Whether buying a used car, or choosing a brand-name product, trust is what often drives consumer behaviour,” he said. “So while digital innovation in financial services is referred to as “fintech”, the “tech” is viewed by many people as more trustworthy than the “fin” – so traditional “fin” industries will be at a comparative disadvantage as digitisation takes hold.”
He cited a recent global trust survey that placed banks and financial services at the bottom (along with media), while the most-trusted sectors included technology, consumer electronics and agriculture.
“There are some other trends that may increasingly favour new digital entrants to the financial sector: online lending such as peer-to-peer networks enjoy lower loan origination costs compared to traditional bank networks and (at least for now) less regulation in the online financial sector translates into lower compliance costs,” he said.
However, he warned that fintech firms are not immune to questions about trust.
“Reports by the Cambridge Centre for Alternative Finance show very mixed views on the state of regulation in the alternative finance industry around the world,” he said.
“Some critics have drawn parallels between peer-to-peer lending and the subprime lending crisis that led to the financial meltdown of 2007-2008; and a lending scandal at the big San Francisco-based fintech firm Lending Club led to the ouster of its chief executive earlier this year.”