How Fintech has changed the entire lending process

How Fintech has changed the entire lending process

How Fintech has changed the entire lending process

 

Introduction

There was a recent discussion in the previous blog about Peer to peer lending in the context of lending loans, where we discovered what exactly peer to peer lending meant, what are its advantages and disadvantages, how it works and so forth. We understood that peer to peer lending which is also quite commonly known as Marketplace Lending is a system of lending money to individuals or businesses through online services that connect borrowers with the lenders or vice versa.

Now that one has the gist of the topic, we proceed further to the bigger picture which mainly facilitates this online lending system – The Financial Technology, also abbreviated as “FinTech”

 

What is FinTech?

By simple definition, Fintech is an economic industry that is composed of Companies that use technology to make financial services more efficient – both for the common man and financiers alike. These Financial technology companies are usually start-ups formed to make the financial corporations that rely less on software – incumbent.

We all know that with the very much required advancement of technology, most of the economic sector and other public service sectors rely on the use of technology to make their products and services appear more efficient in the market and also to make themselves lead the race in their concerned Industry.  Fintech operates on this principle.

When we talk of peer to peer lending systems in the lending market, we have to pay attention to the fact that the lending market has seen a variable shift from the traditional financial institutions to Fintech companies providing a completely alternative method of business lending. They are seen as significant drivers in the financial lending market as they are changing the basics of lending by utilizing data and technology.

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Here are four ways through which Fintech has completely ousted the traditional methods of lending and have brought a drift in the lending market:

In the traditional lending model, what generally happens is that lenders accept deposits from customers to extend the loans to other customers - A principle system that is most commonly used in Banks. But Fintech has disrupted this traditional method of lending by introducing the peer to peer lending system, and as we already discussed in the blog on the same topic, with peer to peer lending, there is no need to make a deposit at all as peer to peer lending solely works online and there are websites that act as the middlemen between the lenders and the borrowers. Some examples include; www.upstart.com, www.prosper.com, www.lendingclub.com among many others.

Now Individuals do not have to worry at all about earning interests from banks. Instead, individuals now can earn interest by lending to banks through this system of lending. It also helps the banks to improve their credit appraisal models by collaborating with peer to peer lenders and it can also help in enhancing their (banks’) online lending strategies and also at the same time providing their new products and services at a lower cost to their customers.

As we all know, lending is tool which requires high scrutiny from the lenders on the borrowers in terms to check upon the creditworthiness of the borrower, and as it happens in the case of any lender, quite exclusively in banks and other forms of lending as well, The Fintech companies (who are the lenders, in this case) pull data on potential borrowers/customers from various alternative sources to determine how likely the borrower is going to repay the loan. This data which is collected from various sources are analyzed and compared through the use of high-end technologies, within a matter of seconds to create a profile of the borrower’s creditworthiness and risk.

This is the most common trend that has begun to be followed in the financial lending markets by many financial institutions that have begun to implement alternative credit data to get a more comprehensive idea about the consumer, rather than just checking up on their credit score.

One of the many perks of Financial Technology lenders is that they offer microloans to small businesses or even individuals that do not require long processes of loans being verified and approved. It is often seen that in certain scenarios, banks take months to approve a loan, which in turn dissembles the whole point of acquiring loans. On the other hand, Fintech Lenders approve loans easily within 24 hours.

According to a recent survey, 30% of the consumers find various banking features easy-to-use. Another report suggests that banks are considering speeding up their loan application and funding process to keep up with the high tech companies that offer customers an overall faster lending process.

 By the automated process of lending, Fintech lenders save a lot of money on overhead costs such as personnel, rent, and administrative expenses. This is quite beneficial as the money saved on such costs can be converted and passed on to the customer in the form of competitive interest rates. This would lead to traditional financial institutions to push their rates of interest even lower. And exemplary to this, financial institutions have started to offer more perks to their customers.

For example, one of the leading banks of the world – Goldman Sachs, has introduced a leading online platform called ‘Marcus’ which provides loans to unsecured customers with zero fees.

 

Conclusion

We at Bankquality believe in giving our readers, the best there is to offer, by entailing all the latest information on our website, the latest trends in different financial institutions, such as Fintech, which comes under peer to peer lending. If you have ever engaged in this lending process, feel free to share your experience on our global platform by writing a review so that people, who consider engaging in this lending market, can make decisions based on your experience to decide what would be the best service for them. Click here and start writing a review TODAY!