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The Brave New World of AltFi

Taking advantage of disruptors to the traditional finance market
Credit&Finance

The Good, the Bad, the Ugly
The rise of AltFi options has certainly benefited startups seeking seed capital as well as businesses unable to get loans from traditional sources. In addition, ordinary people can invest money in projects on a direct basis, something rarely available in the past.

AltFi is not without its critics, however. Businesses with poor credit histories pay a high price for loans on AltFi platforms, while attorneys and accountants point out that rewards-based crowdfunding carries various federal and state tax implications as well as legal issues.

On the lending side, critics worry that naive investors seeking the ‘next big thing’ may be vulnerable to losing their nest eggs. What’s more, investors may be unable to sell their shares, since equity crowdfunding lacks a liquid secondary market.

Don’t Count Banks Out
While online platforms continue to grow, they are no longer seeing the triple-digit growth enjoyed a few years ago. The slowdown has been attributed to the greater availability of bank loans at lower interest rates, as banks have rebounded from the dark days of 2008 (including a rollback of most Dodd-Frank restrictions).

Banks are also scrambling to compete with online platforms by joining forces with FinTech companies or building their own. The 2017 Global FinTech survey found 53 percent of responding U.S. financial institutions were already engaged in partnerships with FinTech firms, while 88 percent expected to increase partnerships over the next three to five years.

Eastern Bank, a mutual community bank in Boston, developed its own online business-lending platform that boasts a two-minute application process and instant loan decision for Massachusetts small businesses seeking up to $100,000. The bank has spun off its technology incubator and is licensing the platform software to other banks.

A Fad or Here to Stay?
It’s undeniable that online platforms have revolutionized the financial services industry and improved the operational efficiencies of lending—but will they continue to grow and evolve? And more importantly, will they prove more resilient than traditional banks during the next financial downturn?

Regardless, the future of financing is forever changed, and some businesses are already reaping the rewards.

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Irene E. Lombardo is an award-winning writer/editor with more than 30 years of experience covering a variety of subjects, including the food and financial services industries.