6 Differences Between Fintech and Bank Lenders
The third speaker from Investree is Adrian A. Gunadi, CEO & Co-Founder of Investree.
He covered the macro aspect of Fintech, rather than delving into the details like the previous speakers.
One topic in particular that I would like to discuss is the differences between a bank as an institutional lender and a lending fintech such as Investree as a peer-to-peer lending platform.
Types of Products
In terms of products, banks usually have traditional but tested working capital and investment products. While Fintechs need to have innovative products in order to compete against traditional lenders.
The reason is not because traditional banks are against innovation, but rather because they are being chained by their legacy systems and processes. Fintech does not have those restrictions and therefore they are able to move faster to develop custom solutions.
However, banks should be able to keep innovating by acquiring fintechs with a well-tested product and cutting-edge technology. The other alternative is for banks to ditch their legacy system, but that is not preferable as their whole ecosystem revolves around it.
Examples of legacy issues are fixed cost, old infrastructure, and outdated technology.
Duration of Loan Products
In terms of duration, loan products in banks have a longer duration, more than two years usually, rather than fintech with less than two years in average.
One of the reason why is due to one of the major attractions of P2P lending for lenders; fast money with high risk.
Another reason is due to banks prioritizing safety over returns, picking low risk over high risk candidates. This is why they have a higher confidence in their loans and thus able to give longer duration with higher loans.
Banks are targeting prime borrowers with strong credit rating, while fintechs are reaching out to even the unbankable, as long as they are credit-worthy.
As banks are targeting those with strong credit rating, they mainly target large corporations with a proven track record.
Fintechs are the opposite however. They are targeting the gaps in which conventional banks are not targeting, the MSMEs.
Both do have collateral requirements, but fintechs generally have more flexible and lenient requirements.
Banks are huge, they have the operational scale and offline distribution channel to maintain both cash and cashless system.
Fintechs however, rely on their technological prowess and innovation, which translates to faster, simpler, and cheaper process.
These are just six basic differences between the two, do comment below if you have anything else to add.
This is part three of our series on Investree.
To see the previous part, click here.
To see the second part, click here.