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FinTech – more risk than traditional financial services?

'Fintech' (short for 'financial technology'), refers to technology that is rapidly changing the financial service industry. Fintechs include a range of innovative programs such as mobile banking, crowdfunding and more recently online marketplaces for home loans.
 
HashChing is one of Australia’s first online marketplaces to allow consumers to access home loan offerings without having to shop around directly with lenders. HashChing operates at the intersection of brokers, lenders and consumers and connects consumers directly to mortgage brokers who can negotiate a lower rate from lenders. The online marketplace allows consumers to access rates from entities outside the big four, leading to greater competition and more competitive home loan rates.
 
Fintechs are challenging the mortgage industry by delivering greater access to information to consumers empowering them to make informed financial decisions.
 
How does it compare to doing business directly with a bank?
In a market dominated by the major banks, regulatory breaks for Fintechs present a risk for the industry. You may be able to save a bit of money through marketplaces such as HashChing, but you need to take care to ensure that you are not exposing yourself to unwanted financial risk.
 
Licensing exemption
In an attempt to balance the need for consumer confidence while not unnecessarily restricting opportunities for innovation, the Government has been working with ASIC to introduce licensing breaks for some Fintech businesses. For example, start-up Fintechs with less than 100 customers are able to test their product on the public for a period of time without a financial services licence.
 
By allowing Fintechs to test the market, they are able to refine concepts before the expenses of obtaining a licence and complying with the licence, are incurred. These licence breaks reduce the regulatory uncertainty and costs that can stand in the way of a start-up but also mean that Fintechs are allowed to sidestep some of the regulation that more traditional financial services are subject to when they enter the market.
 
Make sure you review the webpage of a Fintech before you invest, as any business operating without a licence must notify ASIC and advise clients that they are operating without an AFS or credit licence. When these start-ups wish to enter the market, they will need to obtain a licence or be an authorised representative of a licence holder.
 
Broker profiles
In an attempt to increase consumer confidence Fintechs such as HashChing undertake a verification process to check that brokers are legally authorised to provide credit services and have more than 3 years experience. Every individual broker that is available on the platform must be either an ACL Licensee or credit representative. When you are using the service, you also get to see the broker's profile. The profile shows how the broker has been rated by previous customers as well as their previous experience. Ensure that the broker you contact is certified for the financial service they are providing and check their rating and experience before you trust them with your investment. 
 
Be sure to check the licence of the business and the licence of the broker. If you need advice regarding the licence of a business or otherwise with regard to any Fintech, please do not hesitate to contact us to reduce your risk of a financial loss down the track.