Technology changes and affects every single industry and sector. There is no exception. Lending has been the exclusive purview of credit unions and banks for decades. Times have changed. Today, there are many FinTech companies that extend loans to business owners and other consumers. Their practices have considerably changed the loan process.
New Lending Models
The traditional lending models extended loans to some clients by accepting deposits from other clients. Banks used such models to their favor to earn money. In fact, they were charging borrowers higher interest rates than they were paying to savers. With peer-to-peer (P2P) lending, FinTech companies have managed to subvert this process. Just about every phase of the lending process has been changed by financial technology.
Companies like Prosper and LendingClub have allowed individuals to earn interest by borrowing money to other people. Of course, they require a small fee to make and manage connections. There is no traditional application. Instead, borrowers present compelling reasons why they need funds to secure loans.
No matter what type of loan is in question, FinTech companies offer faster applications, approvals and funding times than traditional lenders. It typically takes weeks for banks to approve loans. Likewise, credit card providers may take weeks to distribute cards.
P2P lending companies, on the contrary, take no more than 24 hours to approve applications and fund loans. Some companies of that ilk deliver loans to small business lenders in a few minutes.
Unique Financial Products
Companies such as Earnest and SoFi have jumped into the online marketplace with personal loans, student loans, mortgages, and consolidation. Other FinTech companies offer invoice financing, factoring loans, as well as a variety of other financial products. This leads to product expansion in the landing and banking industries.
When offering online loans, FinTech companies utilize a large number of different data points. That is because they want to be sure that the borrowers will repay the loans. Most lenders used PayPal or eBay data at first. That helped them see the number of sales someone was posting. Once they have found the insights in sales data, they offer loans. Some lenders still operate this way.
Fintech lenders are incorporating data from a number of sites, including Amazon, UPS, QuickBooks, Yelp, Yodlee, LinkedIn, and Facebook. Just to mention that it was impossible to obtain data from these sources a few years ago. Today, the data are being collected and analyzed in a matter of seconds thanks to modern financial technologies. This enables lenders to quickly check creditworthy of their borrowers and know if they are able to repay the loan.
To protect consumer details, Fintech companies make use of a variety of tech measures. For example, they utilize authentication tokens to check information from third-party websites. That’s because they are fully committed to protecting.
Fintech is revolutionizing the lending process in an exciting way. These changes influence each phase of the loan process. The way a loan application is assessed, lenders engage with consumers, and profits are generated is completely different. As a result, loans are now more affordable, more favorable and more accessible to many people.
It's a safe bet that Fintech industry will continue to change the lending process. So, be sure to embrace it and get the most out of your loan.