In its early days, fintech was seen as a mere playground for financial speculators – experts saw promising start-ups with interesting and innovative solutions, but nothing with the potential to really disrupt the status quo in the short-term. No longer.Joanne Miller
Fintech (a trendy abbreviation of ‘financial technology’) is an exploding sector that is revolutionizing the way banking processes, loans, and financial transactions are handled, radically changing the industry by cutting out the middleman on a broad range of real estate transactions. It has allowed borrowing and lending to become a faster process, with lower costs and fewer delays, while creating shortcuts for consumers looking to close a deal, find a property, or obtain financing.
Fintech has made financial services more consumer-friendly, affordable, and efficient.
For example, take a look at the traditional asset manager against recent fintech solutions. Recent statistics published by Bloomberg show that computer programs providing online investment advice typically cost less than half of a traditional broker. These programs, called robo-advisers, manage all sorts of assets, including fixed income securities, foreign and domestic equities, and real estate assets. A.T. Kearney, a consulting group, based out of Chicago has predicted a surge in the services provided by robot-advisers, and by 2020 it will likely become a USD $2.2 trillion market.
In addition, peer-to-peer lending platforms and crowdfunding have shown how technology is helping investors raise capital, as well as speeding up the real estate lending and underwriting process, and shaking up how investments will be made in the future. Some banks are leaving the traditional model behind in its entirety, with several companies opting for the ‘online-only’ approach, lowering fees while still offering the same services (minus the human teller, of course!).
It’s no surprise that worldwide lenders, including major players in the USA, UK, NZ, and Australia are jumping on fintech. To give you an idea of just how transformative this is for the industry, we’ve rounded up a selection of the most prominent companies you should keep your eye on.
Fair Isaac provides credit ratings used to drive real estate sales, using a powerful algorithmic solution to quickly provide a comprehensive financial picture. Gone are the days when consumers had to wait a few days to learn about their credit score. Nowadays, thanks to Fair Isaac, potential buyers can know their credit score in seconds, allowing them to look for financing knowing how their score stacks up against other borrowers.
SS&C Technologies is being used by real estate, commercial lending, and property management companies for transactions, with this innovative up-and-coming company disrupting the traditional model by making processing and clearing practically instant.
The technology used by Fiserv is used to facilitate loan origination, risk management, and lending, and is now being widely used by banks for real estate related transactions. Fiserv improves the traditional lending process by quickly providing lenders with accurate information regarding their borrowers, increasing the speed of the operation while reducing the risk.
Zillow provides potential customers with information on financing, housing pricing, and availability, as well as giving sellers a way to directly communicate with potential buyers, both in the rental and ownership markets. This is significant to the real estate market not so much by it replacing real estate agents, but by making their jobs far easier. The platform has quickly become the preferred place for any real estate company to place a property for sale.
The disruption fintech has brought upon real estate has provided benefits to both potential sellers and buyers, going beyond merely increasing the speed of transactions. Borrowers can now digitally complete a loan application instead of having to bring hundreds of pages of documents to the bank, decreasing the potential for missing information or human error.
Lenders can now use sophisticated computer algorithms, efficiently parsing through the uploaded documents and creating a summary to be reviewed by a professional. The algorithms can process the data at a much higher speed than a human and can even screen out an unqualified applicant.
Nonetheless, as with a lot of other industries, humans won’t be completely replaced with a computer, as there are still some clear limits to technology. For example, knowing how to properly underwrite a loan is still a big challenge for fintech. There are various factors to consider when making this decision, such as the financial details of the loan, the location and type of property, and the quality of the borrower, which cannot be boiled down to a single term or number.
Therefore, a hybrid approach is needed, as technology can only be as good as the people using it. Combining the experience of a real estate professional with the data generated by an algorithm can help a tech-enabled lender reach the most favorable decision for both the lender and the borrower.
The relationship between fintech and real estate is still, in the grand scheme of things, in its budding stages. However, the technology is clearly improving and expanding at an impressive rate, and real estate professionals should expect further disruptions to the way things were traditionally done in the past.