Fintech firms are battling banks—and the banks are winning

This story originally appeared at Advisor’s sister publication, Canadian Business.

Mogo Finance Technology Inc. happily bills itself as the Uber of banking. The Vancouver-based company’s online platform instantly assesses a borrower’s creditworthiness and issues short- and long-term loans. Mogo (TSX: GO) is part of a wave of so-called fintech companies that see themselves as disrupters of the stodgy old banks. Armed with a better understanding of mobile technology, free from costly branch networks and focused intensely on the user experience, these online firms are muscling in on the lucrative business of providing loans, mortgages and portfolio management services to the public. If fintech is indeed supposed to grab market share from the incumbents, it should represent a good investment opportunity.

Read: Big banks respond to fintech by cutting fees, offering new options

So far, however, public markets have been less than impressed, particularly with online lenders such as Mogo. Lenders comprise just one corner of the fintech universe, and only a small number are publicly traded, but their track record to date has been dreadful. Mogo’s stock has fallen 70% since the company went public in June 2015. Lending Club Corp. (NYSE: LC), a marketplace lender in the U.S. that matches investors with borrowers, is suffering too. Its shares are down 68% from its initial public offering in 2014. OnDeck Capital (NYSE: ONDK), a company that issues loans to small businesses, has plummeted 65% in the past year. The phenomenon isn’t confined to North America, either. Chinese marketplace lender Yirendai (NYSE: YRD) listed on the New York exchange in December and promptly posted double-digit declines over the ensuing months. (It rallied past its offering price in March, however.)

A number of factors explain the skepticism around digital lenders, but one overriding theme is these companies might not be as disruptive or innovative as first billed, according to analysts who follow the stocks. As the fintech space grows and more companies prepare for IPOs, investors need to look past the hype.

Read the full story at Canadian Business.

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