Want a loan? Pick up your phone
By Jay Lotz on Monday, May 16th, 2016
Financial technology–or fintech–companies are springing up everywhere these days. Fintech companies are generally startups, creating websites and apps designed to compete with the big banks across a wide range of financial products and services. Apps now exist to facilitate lending and borrowing, transfers and payments, stock trading, currency exchange, crowdfunding, and more. Thousands of fintech startups have attracted billions of dollars in investments, and the trend is growing.
Lending Club is one such company. Through its platform, Lending Club connects lenders with personal borrowers seeking financing for any number of reasons–for instance a home improvement project, medical care, or a small business. In the first quarter of 2016 alone, Lending Club originated over 200,000 loans, with a total value of over $2.5 billion, according to its website. The majority of Lending Club loans have been used to refinance existing loans or payoff credit card debt.
Another is Venmo, a mobile payment service that allows its users to transfer money to each other for noncommercial purposes. A hit with millennials, Venmo allows its users to send money to each other with a click of a button, and share the transactions with their network of friends. Over $1.6 billion was transferred using the app in the second quarter of 2015.
The growing popularity of fintech apps is drawing increased attention from regulators and lawmakers. Fintech companies have the potential to offer consumers savings and flexibility, but concerns remain about these young companies’ efforts to secure their users’ private data and prevent fraud. Last year, the Consumer Financial Protection Bureau brought an enforcement action against Dwolla, a mobile payments company, alleging that the company misrepresented its data security practices to customers.
Many fintech companies have access to their customers’ bank account and credit card information. Some also request other user information. Marketplace lending companies, for instance, may use information about a borrower’s social media presence or other nontraditional data to assess creditworthiness. They are often not transparent when it comes to telling their customers how they use this information, and whether or not it is verified. Complaints have also surfaced from consumers who, having been scammed via an app, found that the company offered them little recourse.
Consumers deserve assurance that their money and sensitive information will be protected. It is the task of regulators to provide this assurance, even when new technologies shift the playing field. Stay tuned for an upcoming blog on how federal regulators are meeting this challenge. In the meantime, Consumers Union would like to hear from you. Have you used any fintech products? What was your experience? Tell us your story in the comments.