FinTech is a term broadly used to describe technology-driven financial products or services designed to provide innovative solutions for business and consumers. This encompasses not only startup companies, but large financial institutions and big tech companies. FinTech examples include the privately owned trading app Robinhood, digital payments system PayPal (PYPL), and the Apple (AAPL) credit card launched in partnership with Goldman Sachs (GS).
For purposes of this commentary, the focus is on FinTech firms providing banking services and highlighting inadvertent risks you may be taking as a consumer. Consumer demand for mobile transfer and digital payment services has grown recently due to the convenience they provide. When these services are provided by non-bank companies, however, they are operating outside of the existing banking regulatory structures. This means that consumers are taking additional risk when money is held in non FDIC-insured accounts as non-bank companies are never FDIC-insured.
These shadow banks can act as transaction facilitators; receiving and transferring funds at the consumer’s request. The risk of course is that the consumer may be unaware of the uncompensated risk they are bearing during the time funds sit or pass-through non FDIC-insured accounts. Shadow banks may offer various customer guarantees but are not held to the same rigorous standards of safety and soundness, fair access, and fair treatment of customers that apply to banks.
FineMark, though, offers Zelle® as a FinTech solution to its clients for peer-to-peer digital payments to friends, family and people you trust. Funds are sent from and received directly into your FDIC insured bank account, and never held by an intermediary. This distinction mitigates the exposure risk consumers are otherwise bearing.
FinTech is rapidly evolving facet of the financial world, and while it provides greater financial conveniences, such services may have hidden risks of which you should be aware. For more information on how this applies to your specific situation and solutions offered by FineMark, please talk with your banker or stop by one of our offices.
By Ann Pankow, CTFA, CFP®
Associate Vice President & Private Wealth Advisor, Trust