Gone are the traditional days when you only had one option for your lending needs. If you wanted to purchase something and you didn’t have the capital, over to the local bank, you would go, to ask them for a loan. Unfortunately, due to the housing crisis of the mid-2000s, obtaining money for just about anything isn’t near as easy as it once was. No one will finance your dreams on a handshake and a good reputation.
The good news is that over the next couple of years the average individual may have more options than just traditional lending opportunities to choose from. Once better, thanks to the competition of other choices, you may have some negotiation power back in your hands again.
It turns out that one of the biggest challenges to ever face traditional lending for big institutions may not have been the recession of a couple of years ago, it may be innovative financial technology companies like Fintech. Fintech is giving small businesses, and individuals alike, the opportunity to dream again about things like investment opportunities, mortgage borrowing, and checking accounts.
Not just a minor problem on the horizon for banking institutions, by some estimates, Fintech may cause traditional lending institutions as much as 60% of revenue over the next decade. Whether the estimates are zealous or right on target, according to an RRSP Calculator, it remains to be seen.
In answer to the potential to lose millions, if not billions in revenue, the banks are working hard on developing something called CIBC Smart Accounts. Not a techie product, it is giving the average layperson more options for better banking and personal finance. Typically, you have only three to four options at traditional lending institutions for your checking account needs. The new platform being developed may be the answer to the equation.
CIBC smart accounts work differently. They don’t make investors and savers choose between three to four options; they work by using a “pay only for what you need” system. That means that you can choose your own terms, like repayment months, finance charges and other specifics that are normally built into loans without the consent of the borrower. It allows consumers for the first time the ability to customize their loans to their benefit instead of being beholden to only a few options.
The basis of the new accounts is that you don’t have to choose between an account that you won’t ever use or have to pay for a high-end one that you use infrequently. In the traditional scenario, the one who is getting squeezed are the ones who fall somewhere in the middle. The new platform allows people to pay for only the services they need, and if they should go above that, there is a one-time fee instead of per charge, which can add up considerably over the course of a year, or the term of a loan.
Fintech works on the basis that there should be no fees at all for using a checking account. With many banks now charging for people to have a checking account, the new platform is a great relief. The big banks are having a hard time competing with online banking because they have to pay for the brick and mortar as well as individuals to run the banks That disallow many banking institutions to cut their fees in response, they simply can’t do it.
Banks who switch to the new pay-as-you-use platform may earn some credit with baby boomers who are looking for the personal touch and a place to go to get the services they need. The younger population, however, is okay without a handshake and a local branch. Being much more tech-savvy and capable of getting funds outside of traditional banking institutions, they will probably not see much benefit from it.
Big banking institutions may have a hard time keeping up with offerings of techie options like Fintech. The new generation has proven to be one that wants things instantaneously, not to wait for things to clear. They want to get something and pay nothing for it, and most of all, they don’t care if someone is around to give them a smile and treat them like they are someone. They have Snapchat, Twitter, and Instagram to make themselves feel like something special. The next decade is going to be an interesting one for personal finance and big banks.