Does using a bank really contribute to financial health? A surprising number of people answered no to this question. Looking at the trend in how banks fees have skyrocketed, it is not actually that surprising. In recent years, banking services have increasingly been harder and harder to access both for the common person and SMEs alike. More and more people and SMEs are looking elsewhere to get what they need. This “elsewhere” direction is whats prompting industry leaders like Adam Jiwan, of Ridge Road Partners to provide alternative sources of loan funding for students and SMEs. The need for other sources other than banks is driving the growth of alternative lending solutions like wildfire.
Banks in the eyes of many have become counterproductive, there is a story circulating online of a somewhat horrific nature of a child wanting to save money via a savings account. The parents opened a savings account to teach the kid to save. After some time they opened it again and to their horror, the kid actually lost and did not save any money. The bank subtracted a sum per month as service fees, causing the child’s savings to actually decline instead of gain interest. Many banks do not offer the free savings account anymore, and as the story above illustrates, not even for minors. The bottom line is that banks are simply charging too much for their services.
Where to Go?
The alternative solution, especially for the millions of “unbanked” population are other financial institutions not tied to the traditional banking system that utilize credit reporting as the benchmark for how much you can borrow. Having options OTHER than your credit is a heaven sent for many individuals and small businesses. Online Financing Institutions, Payday Loans, Buyout Companies, Cash Advance companies are just some of the alternatives that came out of the would work to respond to this very basic need to have options. Banks, of course, are fighting back, but the figures speak for themselves. For example, a payday loan has an APR of 200 to 500 Percent. Which of course sounds and looks ridiculously high, right? You would be surprised if I say it PALES in comparison to how a bank would charge you for overdraft fees. Let us put that into perspective, shall we? Let us say the amount that you overdrafted is your loan and the fee for that is the interest. Base it on the current fees that banks are charging for overdraft and you will get like a 5000 Percent APR. Imagine that.
So instead of persecuting these alternative lending institutions, look at the big picture and see who really is helping who. Instead of the government cracking down on these SMEs themselves, proper regulation and protection of the clients should instead be prioritized.