A recent Wall Street Journal article titled Banks Can Trump Fintech as Zero-Rate Era Ends asserted:

“Disrupting banks when interest rates are near zero is playing on easy mode. As rates rise, the game will get harder. Banking has been carved up. Financing companies, originating mortgages, and making consumer loans have migrated to fintech upstarts. As interest rates rise, and money isn’t sloshing around freely, the question becomes whether upstarts that have thrived on market funding will once again be at a disadvantage.”

The articles points out that:

“Regulation, technology and banks’ own missteps have played their parts in this shift. But one core driver has been cheap funding.”

There’s no debate that rising interest rates will improve banks’ lending profitability. But the assumption that a higher cost of funds will unduly penalize fintechs—swinging the lending tide back to the banks—ignores a few realities.

There are four factors that fintechs have going for them in the lending battle as interest rates rise. No one factor is the “smoking gun” for my argument, but together they add up to a solid defense for fintechs.

1) The engagement factor

To win consumers’ borrowing business, consumers have to know you. And to develop an affinity for you, they have to be engaged with you.

Banks are at a disadvantage from an engagement perspective. Cornerstone Advisors found that, among Americans between the ages of 21 and 55, more use a fintech startup to perform a range of financial management activities than those that use a bank or credit union.