The fast-paced growth of technology has led to an increase in the demand for tech-supported and streamlined services throughout different industries around the world. The rise of financial technology (Fintech) in the finance industry is compelling conventional banks to embrace a more technology-oriented and customer-focused approach.
Earlier, the banking industry was the most reluctant to adapt to changes. It was characterized by lower levels of engagement and diversity, leaving clients frustrated and confused by the intricate banking processes. The stringent lending restrictions coupled with clumsy and long application processes made securing personal or business loans a herculean task for most people. Today, the emergence of state-of-the-art technologies, changing customer expectations, tight regulations, and sprouting business models are pushing conventional banks to update, embrace, and elevate themselves to the newest financial technologies in this rapidly changing digital world.
The Rise of the Lending Industry
The long or strict procedures of traditional banks together with the advancement in Fintech has resulted in the rise of the lending industry, a scene that has grown by leaps and bounds in the past few years. A large pool of clients who otherwise couldn’t secure loans from traditional banks can now get them from the many loaning options that have emerged. What’s more, the process has become faster and more efficient. With a computer or smartphone, you can apply and get a loan from the comfort of your home or office.
How is Technology Transforming the Lending Industry?
Peer-to-Peer (P2P) Lending
While P2P may seem like a fairly new concept to some people, it has been in existence for the last 10 years. It is a contemporary type of credit that focuses on extending loans to borrowers by taking advantage of their ‘peers’ – persons or small-scale lenders will be generating profits in form of interest on the money they lend. The P2P platforms operate efficiently through a simple and stress-free site that plays the role of linking lenders to borrowers, doing away with the traditional banking procedures. P2P platforms don’t lend their own money. Instead, they provide a method for a potential lender to meet a potential borrower. The peer-to-peer landscape currently grows at a 48% Compound annual growth rate (CAGR) and is projected to generate more than $800 billion by 2024 worldwide.
Automation of Manual Processes
With wide accessibility of high-speed Internet and increases in the number of computing devices and Internet-enabled cellphones, lenders are now leveraging the Internet or mobile applications to reach a large pool of potential clients online. This automation of manual processes is benefiting both lenders and customers by enabling fast and efficient disbursement of higher loans at lower risks. For instance, implementation of tech-based risk modeling procedures allows modern companies to eliminate limitations of manual loan evaluation and directly results in faster distribution of loans to eligible applicants.
Strategic Data Utilization
Financial institutions rely on consumer data to make key decisions – bankers base their loaning decisions on the nature of your credit score. However, the ever-increasing interconnectivity of people and their Internet-enabled devices gives rise to new flows of real-time data that lenders can use to support their decisions. FriendlyScore, for instance, performs thorough investigations of individuals’ social activities to offer an extra layer of unique data that lenders can use to determine the creditworthiness of an applicant. Does your small business enjoy a strong online presence and respond to customers’ issues promptly? If yes, creditors may consider you a good risk. Do you only post about parties and night-outs with your drinking buddies? Well, that might lower your chances of securing credit.
Multiple Loaning Options
Before the digital era, financial institutions offered limited loan options, and borrowers were forced to work with what was available. Today, rapidly growing financial technology has created many options for borrowers. In addition to the many competing loaning options to choose from, applicants can choose whether to apply online or directly with the creditor. The application procedure is extremely easy and available on a 24/7 basis.
Personalization of the Customer Experience
Institutions that take advantage of what the fast-rising Fintech has to offer are better positioned to use the greatly personalized and tailored solutions that customers highly anticipate. As technology grows, companies can process more data and gain a better understanding of their clients. Personalization includes increasing the relevance of message that financial entities send to their clients, while also ensuring customers receive the message in a timely manner.
Cutting-edge technologies are now allowing banking and non-banking finance companies to manage the growing volume of data. Through Machine Learning and Artificial Intelligence (AI), lenders can analyze a large volume of data and craft the right information to target potential customers.
Availability of Loans to Previously Unqualified Borrowers
Traditional banks approved loan applications from customers who had good or excellent credit scores and collateral. This locked out startups, small businesses, or even individuals with good credit scores but no collateral. Luckily, with the emergence of Fintech companies that adopt advanced models, formerly unqualified borrowers can today get their much-needed money. There are loads of options for even those with a poor or non-existent credit score.
Fintech companies face some industry-unique challenges when it comes to regulatory laws and rules because they handle highly sensitive and confidential data. It is important for them to incorporate state-of-the-art security and verification technology within their platforms to prevent unauthorized access to consumer data. Some have already integrated fingerprint authentication and are now moving towards facial and iris confirmation technology.
Whether you’re an entrepreneur looking for funds to get your startup off the ground or a person facing financial difficulties, you can now stress-freely and affordably obtain a loan. With fast technological developments, the revolution in the lending industry is still far from its peak. It will keep on growing exponentially and reach unbelievable levels. More players will come in as those that fail to move with the pace of advancements get out.