Innovation and Misconduct


FinTech’s spring coming out party took place last week, with two days of demonstrations of the cutting-edge of financial services technologies at Finovate. To see what innovations companies debuted, take a look at a summary of Finovate’s Twitter feed and the event live blog from financial public relations firm William Mills. At the same time, words like “scandalous” and “stunning” marked reports of the departure of peer-to-peer lender Lending Club’s CEO over alleged misconduct. It may well be yet another sign of how much FinTech firms need the risk-management experience of a bank partner, and I have a number of links covering that part of the story as well this week.

Cracks are appearing in FinTech lenders

Investors are no longer in love with LendingClub, as the departure of the company’s CEO sent shockwaves through the online lending world last week. The downfall of Renaud Laplanche is another sign that FinTech faces the same challenges as traditional financial institutions. “Bad loans are bad loans, no matter how you disguise them, underprovision them, magic them into credit derivatives or try to ignore them,” writes Financial Times columnist John Gapper. According to Bloomberg, not only is the U.S. Securities and Exchange Commission now reviewing what happened, but it was discovered that LendingClub had altered dates on $3 million worth of loans. The news comes on the heels of Prosper Marketplace cutting jobs and shuffling executives the week before in response to softening investing in the sector, as reported in the Wall Street Journal.

Assault on the broker

The brokers that once made a pretty penny on Wall Street are now at risk of losing their jobs to FinTech firms who can automate investment services, writes Jeffrey Carter in a Points and Figure post. “Wall Street and other industries that exist because of broker networks are getting blown up,” Carter says. “As tech gets smarter and more distributed they will continue to get blown up. Why? More and more information will be accessible to the end user, the creators.”

FinTech doesn’t just disrupt banks, it makes them platforms

Yes, FinTech startups are disrupting how banks operate—perhaps for the greater good of consumers—but they are also disrupting the fluidity of moving from bank to bank, writes Josh Constine for TechCrunch. With more financial technology firms attaching themselves to established banks, simple tasks like getting a new debit card or moving to a new bank now requires users to detach and reconnect their banking services with FinTech add-ons.

How small banks can partner with FinTech firms

Despite all the concern over FinTech firms nipping at traditional banking’s consumer base, only about 1% of North America’s consumer banking revenue has been disrupted by FinTech companies, The Financial Brand reports. However, now that technological advancements have made it easier for competitors to enter the small and mid-sized business and consumer markets, banks need to consider working with accelerators, FinTech firms, or trade associations while remaining aware of the risks associated with partnering with FinTech companies.