How Fintech is changing everything in the lending space?
Over the last few years, the lending market has witnessed significant growth with the advent of technology and alternative lending solutions. There is a massive shift from traditional methods to modern solutions based on data and technology. Much of it is coming from Fintech companies bringing innovation in the lending space.
Fintech providers are offering solutions centred on improving customer experience, streamline operations, and reduce the associated cost. Their services aim to fulfil user needs in terms of better accessibility, convenience, and personalization. With all these changes, how does the future of the lending sector looks like? Here are four ways fintech aims to disrupt the lending sector.
Financial inclusion for SMEs
Financial inclusion has been a crucial part for businesses, especially small and medium enterprises (SMEs). Lack of access to credit services is underpinned by factors such as lack of credit history, hefty paperwork, and lengthy processes. Despite their substantial contribution to the GDP, they often find it challenging to
· get access to formal sources of finance
· expand their operations
· generate working capital
The entrance of fintech companies and alternative finance providers has altered the way SMEs access to loans. They offer several benefits to the SMEs, such as lower cost, less paperwork, and easy procedures etc. Read how peer to peer lending (a type of alternative finance) driving growth for SMEs here.
Bringing fragmented systems together
One of the reasons that obtaining credit for businesses has been highly complex is the sheer amount of data involved in every process. The complex set of data silos with little interoperability makes it even worse. Fintech solutions of the latest generation are beginning to join them together to offer on-demand data access. Compared to traditional processes, fintech has enabled faster and simpler credit applications, KYC, and easy repayments. This also reduces operational cost and facilitates faster decision making.
Technology for everyone
Technological advancements have not been limited to progressive startups but have also affected traditional businesses. Major global banks such as J.P. Morgan, Wells Fargo and Goldman Sachs have begun to work on more tech-savvy lending solutions. Smaller banks and credit unions are partnering with fintechs to find modern solutions to handle regulatory compliance and credit issues. And major technology companies like Apple, Google, and Amazon have entered the fintech space, offering financial solutions.
Although this is still far from the mainstream, expect fintech companies to use AI and ML to determine the creditworthiness, offering personalized credit plans and other financial offerings. Blockchain is another technology that has the potential to transform the lending sector. To banks and businesses, blockchain offers an immutable ledger that enables faster, more secure, and transparent transactions.
Improving the user experience
Many surveys have proved that millennials aren’t completely satisfied with their banking services. Consumers with a low credit score or no financial history suffer a lot when obtaining loans from traditional banks. Cumbersome application processes and documentation adds to the suffering. The evolution and adoption of fintech solutions have taken the user experience to a whole new level. Fintech enables -
1. easy accessibility and personalized offerings to consumers using data and insights,
2. tech-enabled lending platforms for faster credit facilities without much paperwork,
3. customized credit analysis using deep data insights for consumers with less credit score, and
4. quick loans for SMEs facing rejections from banks through p2p and crowdfunding platforms.
Looking forward
The shift towards technology-based lending solutions is already underway, and both businesses and consumers are embracing them. As fintech covers more services and functions in the sector, it will enable entirely digitized user experience. The industry will also witness continued participation by established banks and financial institutions, resulting in a win-win for both lenders and borrowers.
