After the global financial crisis in 2008, many people have gained the opinion the banks are not focused on supporting the end customer but instead look to at purely their own financial gain. A study by Yougov showed that the majority of Brits feel that banks may cause another financial crisis in the future.
Banks have the luxury of being able to have a high amount of capital from customer cash deposits and therefore are able to offer large loans and sums of money whilst demanding high-interest rates. With such large amounts of capital, it is difficult for businesses to compete on large borrowing sums, however at the lower end of the lending market, fintech businesses are beginning to offer alternative solutions.
Secure lending at lower interest rates from the national banks
Until now, it has been hard for people to secure lending at lower interest rates from the national banks. With a new wave of fintech businesses booming into the financial sector, customers can now turn to digital businesses to offer them more affordable lending options, with sites such as rightswitch comparing interests rates and offering the best options for the consumer.
Laybuy app – alternative to credit cards
The Laybuy app offers an alternative to credit cards which have high interest rates. Laybuy allows customers to split the cost of purchases with major retailers either online or in store across 6 payment installments, interest-free. The way it works is by retailers paying a 4% commission to Laybuy, therefore giving control back over to the end customer. People may think that this would not be appealing to retailers, however, Marketing Week state that figures published by Laybuy show that orders using Laybuy boost average purchase prices by 60%.
Investing in fintech businesses
Retailers are seeing massive benefits in investing in these types of fintech businesses. In fact, the BBC announced that H&M invested £15.5m for a 1% stake into digital bank Klarna, which is similar to Laybuy. With Klarna, customers can buy up to £200 worth of goods without paying a penny up front and with no interest.
They are then able to try before they buy, offering customers the ability to return goods between 14-30 days and then only pay for the goods which they wish to keep. Unlike major credit cards and banks, Klarna does not delve into customers credit scores but instead carries out a soft check on individuals using some of their personal details, in fact, 70% of people are accepted straight away.
Laybuy and Klarna offer customers a great opportunity to manage their payments to suit their individual needs. With that being said, however, if payments are missed there are still hefty fines in place after the agreed payment term that they could still incur. With any lending there is always an element of risk should money not be paid in full and on time.
Conclusion
Fintech businesses are definitely impacting the lower value end of the financial market could steal away business from some of the major lenders by offering no interest rates. Given that many people still trust in banks, in order to compete with up and coming fintech businesses that are winning trust, we could see major banks begin to lower their high-interest rates.
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Niall
