FinTech, or Financial Technology, is the revolution that gave us online banking, the crowdfunding movement, and peer-to-peer lending. The natural progression of FinTech will allow us to complete our real estate funding needs online. Imagine a world where mortgage approvals occur within minutes and funding can occur in minutes.
Real estate is involved in a significant transformation, FinTech for real estate will offer an overall improved value proposition for the client, a higher level of convenience, and more flexible solutions.
Technology has been a disruptive force in retail, travel, and publishing; similar technology applied to real estate will help collect and analyze data and learn from the trends which will lead to new lending algorithms based on data processing from a diverse range of sources shaping.
There are significant risks to FinTech investors, investors will have the ability to access crowdfunding platforms with limited financial literacy and therefore may misunderstand or miscalculate the risk and suffer significant financial losses (Jiang et al. 2020). Online platforms may mitigate this risk for unsophisticated investors by offering automatic diversification of the investors’ portfolio and not allowing an investor to invest in a single borrower, therefore, reducing the lenders’ exposure to a total loss.
In a recent paper on how lenders and borrowers manage their interactions, Abad-Segura (2020) finds that the previous competition between traditional banks and financial technology firms has recently grown into a collaborative relationship. Traditional lenders are starting to work closely together with financial technology firms.
Real estate represents half of the world’s assets, it is the most important investment class for pension funds and online sources claim real estate represents 70 to 80 percent of our total wealth (Google 2020) as well as a vast majority of all bank lending globally. There is significant opportunity in a relatively untouched market segment.
The first steps towards digital transformation were online platforms like Zoopla in the United Kingdom and Zillow & Trulia in the United States. DocuSign was another significant transformational service that eliminated the need for physical signatures, allowing all parties of a transaction to sign and view the contract.
Moving beyond DocuSign, new technologies may develop allowing both the contractual signing and funding to occur simultaneously with potentially a cryptocurrency based funding method.
Technology will change the real estate industry for the better (Huber 2019), we may live in high-rise buildings where drones deliver our groceries to the top our smart building and then travel vertically directly into our apartment. The future of PropTech is closer than we may think.
References:
Abad-Segura, E., González-Zamar, M.D., López-Meneses, E. and Vázquez-Cano, E., 2020. Financial Technology: Review of Trends, Approaches and Management. Mathematics, 8(6), p.951.
Rhomberg, H., 2019. New Models of Construction & Real Estate. Real PropTech Available at https://www.coincenter.org/education/advanced-topics/multi-sig/ (Accessed 28 July 2020)
Jiang, Y., Ho, Y.C., Yan, X. and Tan, Y., 2020. When Online Lending Meets Real Estate: Examining Investment Decisions in Lending-Based Real Estate Crowdfunding. Information Systems Research.