Right now, Congress is celebrating its affirmation of House Resolution 835, which, in an almost unanimous vote, garnered 385 yeas and four nays.
This kind of bipartisan support is rare these days. So what united Republicans and Democrats? Of all possible things — including a failed resolution regarding puppies for veterans — it was fintech.
HR 835 calls for the U.S. to “adopt a national policy for technology to promote consumers’ access to financial tools and online commerce to promote economic growth and consumer empowerment.”
In plain English, this resolution (not yet a law) demands our government develop a policy to create tools to help consumers understand and manage financial assets. The language also encourages prioritising the acceleration of development that supports transparency and security — “technology experts can play an important role in the future development of consumer-facing technology applications,” it says.
The creators of these tools would likely be private versus public-sector businesses, a.ka. fintech companies.
Congressional support for fintech is long overdue for the industry, which right now faces huge consumer demand amid growing pains. It’s also great for consumers, for whom this very industry was created. Take, for example, marketplace lending, which arose from consumer demand for easier and faster access to capital following the 2008 crash. Marketplace lending was a game-changer for consumers who had less-than-great FICO scores or credit histories.
To help them, LendingClub, Prosper, and others offered a lifeline, superior in cost and speed than to what traditional banks were offering. Consumers, in turn, paid higher interest rates than prime borrowers did, which fuelled positive returns for investors on the platform. This cyclical nature of the exchange benefited everyone.
Now, just eight years after this industry was created, we’re at an inflection point. Why? Because much of the alternative lending space is starting to rely on institutional investors, many of them from the same banks marketplace lenders were originally expecting to displace.
These investors — from institutions like Jefferies, Goldman Sachs, and Morgan Stanley — are now backing much of the capital that allows fintech companies to lend money to consumers in innovative ways.
Don’t they also deserve tools that provide transparency?
It’s heartening to see the emphasis on transparency for consumers — from Congress, from the Treasury, and from the OCC. It’s imperative that consumers understand what’s available to them, what they’re signing up for, and how they can access better rates and cheaper capital.
But while tools that provide transparency for consumers are vital, tools that provide transparency for investors are perhaps even more important to our economy.
Online lending’s new reliance on capital markets means that the more investors are interested in backing the loans, the better the terms are for consumers. Conversely, it also means that if institutional investors pull back, loan availability shrinks while interest rates rise.
So how do we make it easier for traditional institutional investors to participate in fintech?
Much in the same way we can make it easier for consumers — by encouraging the development of tools that heighten transparency and empower investors to make smarter, faster decisions.
Tools that provide transparency for investors can take several different forms. Some offer the ability to analyse loan level data prior to making an investment. Others offer access to clean data, standardising the original data from numerous originators so investors can run comparisons quickly and efficiently across portfolios. And others import data from originator spreadsheets and place it into a modern online portal, allowing investors to pivot, drill down, and analyse thousands of points in a matter of seconds. (The best tools do all three.)
Call it fintech, investor tech, or (about time) innovation. Whatever form these tools take, what doesn’t change is their mutual goal: to leverage technology to help investors know what they’re buying before they buy, and to track ongoing portfolio performance in as close to real-time as possible.
That’s optimal transparency. And investors deserve it as much as consumers do.
Perry Rahbar is a former mortgage bond trader and founder of dv01, a fintech startup aiming to bring transparency to lending markets.
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