Fintechs are still the wild west of Finance

[+ FrankR]

So you use/rely on a Fintech for any of your financial transactions?

I have very little love for large banks, but the risk involved with the likes of Yotta/Synapse also worries me.

https://www.cnbc.com/amp/2024/11/22/synapse-bankruptcy-thousands-of-americans-see-their-savings-vanish.html

 

[Njguy2]

Unfortunately not the first nor the last of these types of companies to fail, here in US and abroad.  Consumers need to do their homework on how they function and what their risk is compared to traditional brick/mortar big banks.  Became familiar with Sofi (non traditional bank) years ago and they have grown to even having a football stadium named for themselves.

[+ FrankR]

1 hour ago, Njguy2 said:

Unfortunately not the first nor the last of these types of companies to fail, here in US and abroad.  Consumers need to do their homework on how they function and what their risk is compared to traditional brick/mortar big banks.  Became familiar with Sofi (non traditional bank) years ago and they have grown to even having a football stadium named for themselves.

The deception is that these Fintechs claim to be partnering with FDIC insured banks…so they make it sound like FDIC insurance extends to these deposits. In many cases the partner banks also loudly proclaim their excitement with the partnership. Then when things go wrong  and the funds go missing, both parties shrug and the bank as well as FDIC claim they are not responsible. Eroding trust in both the banking system and the FDIC, with the consumer left with the loss.

Edited November 22, 2024 by FrankR

[+ PhileasFogg]

First you’re right to be either suspicious or skeptical.  Money is money and the idea that someone has a better mousetrap on how to use or manage it is ludicrous.  You receive debits and spend credits.  Remember, YOUR debit (money) is a credit to the bank or fintech (a DEBT).   Anything beyond posting debits and credits is like concierge services at a hotel - you either use the service well or it’s wasted - but it’s rarely worth what you pay   

Fintechs activities are usually very low margin businesses that require very high processing volumes leaving room for mistakes if they get too sexy in design or careless in programming  

Fintechs are almost always dependent on traditional banks for processing or liquidity. So, Fintechs are essentially adding a layer of middleman, not subtracting.  Plus, regulators are getting to the fintechs through their processing banks.   Now, that ultimately protects the consumer, but add costs that make the fintech model potentially more costly and less efficient…and irrelevant over time.

Some have been real home runs.  They carved a marketing niche in traditional channels and dominated them and created a brand with appeal.  But just like your Wild West analogy, some find gold and some find nothing…and there’s a lot of work with no effort.

i always advise against using Fintechs that provide revolving credit.  They need daily securitizations and are especially susceptible to black swan events and can melt down faster than a Texas power provider in a freeze. On the depository front, I use Venmo etc, but the money never sits with them.  

These Fintechs that give you analytics on spending and subscription cancelling etc….well, guess what…you just unlocked the door to all your spending … a marketers dream…or a mad scientist’s?

REMEMBER:  IF YOU ARE NOT PAYING FOR THE PRODUCT, THEN YOU ARE THE PRODUCT.

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