As humans, we are preternaturally wired to abhor, or at least be reluctant to, change: change in our routine, change in our way of life, change in the way we do things. Yet those who succeed are capable of embracing change, like my grandfather described in my last article, "Is Malcolm Gladwell My Grandfather?"
That is why technology, and those who use it, faces such a primordial uphill battle. As bad as Mankind needs change, the masses fight that change until said technology has proven itself valuable.
For the moment, let us use the example of business banking...
If you have ever tried to obtain a business loan, what I am about to describe to you is already abundantly clear:
Business owner needs a loan to: expand, purchase equipment, run day-to-day operations, whatever, the need is irrelevant for our purposes.
Being a business owner, I am savvy. I know the days of going to the corner bank where my dad got his loan are from the bygone era so succinctly depicted in It's a Wonderful Life or Scrooge. I know, in order to be responsible, I should go to at least three banks and obtain term sheets (simply a description of the years, rates, collateral, the terms a bank is willing to offer) from each of them.
In order to obtain term sheets from each banker, I must sit down with each banker and tell them about my business and personal financial life and for what purpose I intend to use the funds.
I will then gather three years of business and personal tax returns, a current profit and loss statement, a current balance sheet, fill out a personal financial statement for each bank, a urine and a DNA sample, and literally hand them over to each bank. Yes, I also get to make copies of each of my tax returns and simply hand these over to the banker I just met days before while knowing little more about that person than s/he works at the bank.
Comforting, right?
This person has your entire financial life before them and you don't even know him; and you do this with three or four bankers (all whom you do not know) in hopes of getting a favorable term sheet from each of them.
Does any of this sound insane? You just handed over your entire financial picture and you do not even know if you are at the right bank or talking to the correct person.
Yet this is the exact process I have followed more than nine times in the last ten years to obtain varying types of business loans.
So now four bankers have the most private information about you in a packet with your name on it and you hope, no pray, they return it back to you when they are done. In my experience, one out of four does; the others... no idea.
The problem is, once they gather all of this information, your "packet" goes to underwriting; a portion of the bank (generally in another locale) who takes weeks to analyze your financials and then enters them into a bank algorithm to determine if and how much money you are worthy of being offered.
Then the bank tells you what is wrong with your financials: your business regularly makes money, your salary is high, your credit is rock solid, but they will find the absolute minutia wrong in this entire mound of paperwork to explain to you why your rate is higher than it should be.
When, and if, the bank ultimately sends you a term sheet, you must attempt to compare it to the various other term sheets from the other banks. And, no, there is no such thing as unified term sheet in the business banking industry because that would be too easy. The banks do not want you to be able to easily compare their offer to another. That is part of the game... obfuscation.
This whole process generally takes two months, if it is lightning fast.
Now, lest you think I am placing the blame on the banks. Sure, it is partly their fault, but being these old, venerable institutions who have in many instances been doing business the same way for hundreds of years, they are stuck in their ways, or at least slow to adapt to change. They, like Mankind, itself, are reticence to change and need to be shown the way.
The irony with the banks is they stand to gain (not lose) the most by fintech. i.e. in terms of streamlining the way they do business loans.
What do I mean?
The banks are constantly looking for "well qualified" borrowers to whom to lend money. A well qualified borrower is simply someone who would not have a problem qualifying for a loan; someone to whom a bank would readily extend money. It is difficult to find these well qualified borrowers. Now, no borrower is risk free. Bad things happen to well qualified borrowers just as they could happen to any borrower; however, well qualified borrowers are those in which the risk of default is, at least algorithmically, the least possible. The least possible is determined by each bank individually and each bank has its own internal criteria, although I am fairly certain they would be similar in many respects.
If the banks were to adopt to technology, a new way of doing business, they would save themselves millions in marketing, business development, and personnel dollars, lend more money, and improve their default rates. And, an additional byproduct of all this, would be the benefits to the borrowers: lower closing costs, faster closing times, and an easier, more private business loan process.
FinTech companies are trying to make the banking industry more efficient. Magilla is one such company we created to solve the problem described above, quickly finding the right banker with whom to work without divulging all of one's financial information.
The true beauty in the dual-sided marketplace created by Magilla is that both sides get EXACTLY what they are looking for at a cheaper cost: time, money, and aggravation.
And the proof is in the proverbial pudding; there are numerous examples of how this has happened in a myriad of other sectors of the economy: travel agencies (Orbitz, Kayak), cab riding (Lyft, Uber), encyclopedia (Wikipedia), shopping (Amazon), shoe stores (Zappos), hotels (Airbnb) et al, why would the banking world be any different?
Technology, like the Big Bad Wolf, is scary. But, given the opportunity, in the right hands, technology can prove itself invaluable.
This post also appears on The Huffington Post.