Part of my job as a millennial money expert is to stay up to date on all the changes going on in the world of finance. One of the areas in which I’ve seen some radical change is in the world of Fintech.
In a relatively short amount of time, Fintech has managed to revolutionize the way people manage their money. From micro-investing to robo-advisors, it’s quite astounding what these companies have been able to accomplish not just for themselves, but for the average American.
Below, learn a few of the ways Fintech is changing the way entrepreneurs do finance.
Most people know that they can set up automatic investments at their bank, but unfortunately Americans still aren’t really saving.
The average American savings rate is 5.7 percent, which is a far cry from the 15 percent experts say we should be socking away.
There are two reasons why this may be the case. The first is that Americans may really feel like they don’t have the extra money. The second is that saving is a habit that doesn’t necessarily come naturally to people. That’s where Fintech companies are changing the game.
Enter Digit, an app that automatically finds the extra money in your bank account and saves it for you. Their algorithm analyzes your checking account for cash flow. They know how much is going in versus how much is going out and they find that extra money in between and automatically set it aside for you.
This one app solves both of the problems we mentioned earlier. It’s helping Americans find extra money and it’s teaching them that saving can be easy.
I’ve been using Digit for some time and it’s helped me save over $2,000 that may have been spent otherwise. This has helped me pay for travels, fund my emergency account and help me make donations to causes I care about.
Fintech has made the barrier of entry for investing lower than ever before.
First, let’s look at Acorns. It’s similar to Digit in that it finds extra money. In the case of Acorns, it rounds up the purchases made from your checking account to the nearest dollar. Once you reach $5 it then invests the money into index funds. This is literally your spare change being invested into the market! I have nearly $1,000 of spare change being invested as we speak.
Robo-advisors like Betterment and Wealthfront have also changed the investing game. These advisors automatically provide services like portfolio re-balancing and tax loss harvesting to their customers, which is perfect for people who are just beginning to invest in ETFs and would like a more passive approach.
By cutting out the middle man, they can offer these services at lower fees, which are listed directly on their website.
Again, this is quite revolutionary. Fees are the biggest headache in retirement accounts and these companies have found a way to make them more transparent and cost-effective.
Lending is another area where Fintech is turning the industry on it’s head.
Let’s take business loans as an example. It’s no secret that startups have a hard time getting a traditional business loan from a bank. You essentially need to already be making money in order to get a line of credit from more traditional institutions.
Of course banks would rather give lines of credit to the businesses that they know are good for it, which is reasonable. I probably would, too.
However, that doesn’t mean there aren’t other companies out there that are willing to take the risk. Alternative lenders like Kabbage look at different variables when deciding whether or not an entrepreneur should get a line of credit. Variables include cash flow, industry and how long the business has been around.
Student loan refinancing
Here is where FinTech gets really good. At this point, you may have heard of a company called SoFi. SoFi offers student loan refinancing often times at some pretty good rates. They also don’t have origination fees or prepayment penalties and they can help you refinance both private and federal loans.
Why is this such a big deal? Because not everyone qualifies for federal programs with good rates. Even if they did, I once interviewed an attorney who got a much better interest rate through SoFi than he would have through the federal government.
Additionally, they’ve simplified the entire process. All you have to do is apply online and pick your loan. SoFi currently has over 225,000 members and $15 billion in funded loans.
Truth be told, SoFi has been at the forefront of the Fintech revolution from the beginning. It’s also important to note that they’ve moved into other products such as personal loans and mortgages. These guys are truly on a mission to change the industry.
Fintech final thoughts
In the last few years, Fintech has managed to fix a lot of the problems entrepreneurs and consumers in general were facing in the financial world. Are these perfect solutions? Probably not. Truthfully, it’s still too early to tell how this is all going to pan out.
What we do know is that average Americans are using these tools to do more with their finances than they were doing before. That’s always good news, especially when it comes to financing your startup.
Have you utilized Fintech to fund your startup? Tell us about your experience with Fintech and financials in the comments section below.