A fintech got a bank charter. Now it has deposits. Deposits cost less than borrowing from bond markets or venture debt. This is not revolutionary. This is how banks worked in 1925.
The AI-powered lending part means algorithms decide who gets money. Algorithms trained on historical data. Historical data that says poor people default more. So the AI gives loans to people who don't need them. Rich get richer, powered by machine learning. We've automated redlining and called it innovation.
The right customers means customers who pay back loans. Groundbreaking insight. Lend to people with money and they give it back with interest. This required artificial intelligence to figure out.
Every fintech dreams of becoming a bank. Banks have deposit insurance. Depositors think their money is safe. Banks use that safe money to fund loans at spreads that would make a payday lender blush. But it's a bank now, so it's respectable.
Retail traders read this headline and think they found the next disruptor. They buy shares in some neobank that hasn't turned a profit since 2019. Different company, same dream. Meanwhile this unnamed fintech-turned-bank is doing what banks have always done. Taking deposits at 2% and lending at 8%. The innovation is they do it with Python instead of COBOL.
The expansion into other financial products means they'll sell you insurance you don't need and credit cards you can't afford. Cross-selling. Banks invented it decades ago. Fintech added a mobile app and called it customer-centric design.
AI-powered lending wins because AI says no faster than humans, costs less than loan officers, and never takes lunch breaks. The right customers win because they already won. Everyone else gets a 34% APR and a chatbot that apologizes for nothing.
Photo by Allison Saeng on Unsplash
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