Giles Andrews, CEO of Zopa, provides a fintech perspective on our theme ‘how tech schooled the world’.
Technology has dramatically reshaped the world we live in, and financial technology (fintech) is now a major force of disruption in the traditional financial services landscape. Fintech companies like Zopa are pioneering new ways to manage your money without the need for a traditional bank. As an online marketplace we can provide better value to consumers and a challenge to the traditional players in the sector.
In 2004, when Facebook was just a college network, a pioneer named Dave Nicholson conceived the idea of peer-to-peer lending on the basis of two observations.
One was how poorly the financial services sector in the UK was serving everyday people looking to borrow or to invest their money. The second was the opportunity presented by new online technologies emerging from across the pond in Silicon Valley; a growing number of people were getting really excited by online marketplaces like EBay, which was by then the biggest online marketplace in the world. As well as the financial and material gain from buying or selling something, he saw that they had a huge community of users and that they were achieving something he christened the “social return”, liking the transparency and direct nature of the transaction.
From this, we came up with the method of connecting lenders and borrowers directly online, keeping our overheads low to pass as much value as possible back to the users and the process transparent. Over the past decade we have been copied all over the world, from the US to China, and have seen peer-to-peer models being adopted in other areas like accommodation, foreign exchange, car-sharing and even dog-sharing. Our culture and working techniques are like those in Silicon Valley, including agile working methodologies, daily stand-ups, and rigorous testing to evolve our products with our customers in sharp focus. This is similar to companies like Google, Facebook or Amazon.
Our agility and ability to react quickly is an advantage for us, but traditional financial institutions have been much slower in integrating these elements that have helped fintech companies grow fast. Their scale, regulation, product legacy and creaking IT systems present sizeable difficulties in adopting flexible and iterative working practices and meeting the evolving demands of an online consumer base. We are now seeing the emergence of purely online/mobile banks that allow users to do everything via a smartphone, with no expensive branches and the aim of providing better value for the consumer.
This doesn’t mean the traditional financial sector has been immune to the positive influence of tech. Fintech firms like Zopa are setting the challenge for incumbents to keep up and to meet the new way consumers expect to interact with their service providers.
Ten years ago, Zopa’s all-online application process was unusual, but now many banks have adopted this for their loan applications. Back in 2005, the clear, friendly copy on Zopa’s website made us stand out from the rest of the sector, but now it’s widely adopted. The ethos and accessibility of alternative finance companies is presenting a challenge to banks to treat their own customers more fairly and respond better to their needs. But what’s harder for them to copy is the business model connecting lenders and borrowers directly, and the cost savings it allows.
The influence of tech on the financial services sector is a tale of two halves. On the one hand, the fintech sector is driving forward innovative new services, ways of working and high standards of customer service. On the other, traditional operators struggle to adapt to the tech era and a landscape that is populated with new, more agile competitors and innovative business models predicated on value.
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