“Financial innovation” used to mean thinking about new (and sometimes exotic or complicated) products that financial engineers built to sell to investors. Nowadays, the term has a new twist. Innovation in the financial world has gone technological. Technology companies have entered the fray and designed DIY platforms that may turn the financial industry as we know it on its head.
Take just one example—peer-to-peer lending. Borrowers no longer need to walk into a bank to get a loan. Instead, they can log onto Lending Club, a peer-to-peer platform that connects people who want to borrow money with people who have money to lend. It’s a perfect example of supply and demand that makes use of existing infrastructure, and notably, it cuts out the “middle man.” And it’s not just banks that are vulnerable as a result of these new lending sources. Some experts predict that financial technology will disrupt all traditional forms of finance, from lending to payment processing and insurance. Even digital currency—bitcoin—is slowly gaining acceptance.
Last year, “fintech” attracted $12 billion of investment, and one website tracked 4,000 new fintech startups. As Jamie Dimon, head of JP Morgan Chase said in a recent shareholder letter, “Silicon Valley is coming.”
S.P. Slaughter
Follow me on Twitter: @SP_Slaughter
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