Tags: fintech | lending | process | financial | technology

4 Ways Fintech is Evolving the Lending Process

4 Ways Fintech is Evolving the Lending Process
(Wutthichai Luemuang/Dreamstime)

By    |   Thursday, 05 April 2018 06:35 AM

When you’re in need of a loan, whether for personal or business reasons, approaching the lender is often frustrating.

The paperwork can take weeks, and the qualifications aren’t always easy to satisfy. In response to these frustrations, "fintech" emerged to utterly change the lending process.

Financial technology, or fintech, basically describes any technology that advances the processes in financial institutions, but it’s often strongly associated with lending in general.

Fintech organizations are focused on underwriting deals by evaluating data points, social media, government records, an individual’s web presence, and other factors.

They aren’t as picky as traditional lenders, so those who can’t get a loan through traditional means sometimes can through fintech institutions.

More than 100 million Americans have bad credit, 26 million American adults have no credit history, and an additional 19 million have limited or out-of-date reports, according to the Consumer Financial Protection Bureau.

With nearly half the population struggling to get a loan, the need for fintech is evident.

When it was first introduced, fintech startups exploded. Now they’re changing the status quo for lending.

Here are some of the best aspects of these organizations:

  1. New Lending Models

The traditional lending model involved banks accepting deposits so that they could extend loans to customers. Larger networks of banks had more money to lend, and it was important that banks were cautious so that they didn’t lose the necessary funding.

Fintech companies offer new models that don’t require deposits. Online lending companies, for example, use investment money and interest earnings to fund their customers rather than deposits. Many of these online lenders are based on a peer-to-peer lending model in which there’s no collateral to get a loan (a.k.a. an unsecured loans).

Rather, you’ll tell a compelling story of why you need the money, and, for a small fee, you can be granted the capital. Traditional lenders don’t care about your personal story unless you have collateral to back it up.

  1. Faster Approvals and Funding

Fintech companies are all about speedy funding, which is what primarily sets them apart from traditional lenders. It can take weeks to approve a loan, especially for those with poor credit qualifications.

“Part of the allure of fintech companies is the speed of the seamless approval and funding process,” says Chad Otar of Forbes Councils. “Pursuing a traditional bank loan can turn into a strenuous, time-consuming process, where credit score and collateral are the main qualifiers for traditional lending. Banks consider loans under $100,000 to be too costly and not worth the risk. The underwriting process banks use is time-intensive, due to the extensive analysis of data. This leads to the process becoming costly in terms of both time and money.” Some fintech operations can approve and fund certain types of loans within 24 hours.

  1. Data Utilization

Rather than focusing solely on factors like your credit history, online lenders look at several data points based on your online interactions. Fintech lenders started with interactions on eBay and PayPal for basic transactional information, but now, they incorporate data from pretty much all of your online interactions.

UPS, Facebook, LinkedIn, Amazon and other sites have scores of information about individuals and businesses that lenders use to determine credit worthiness before lending. Consumers with poor or bad credit need to get online to find the credit options that will enable them have easy access to getting loans and improve on their credit score. Sometimes choosing one of the many bad credit credit cards is the best option to get you started.

Technology has definitely improved to the point where what we do with data is mainstream now. You can find the people and technologies to do it.

  1. Security Assurance

Security concerns were the number one issue that consumers had with online lenders, but that concern has decreased now. “Fintech lenders leverage on technology to safeguard the details of the borrowers,” says Angela Scott-Briggs of Tech Bullion. “The companies use tokens to just view data from other sites and do not save or keep it. This preserves the integrity of the customer’s details by ensuring that the lender cannot use it for any other purpose.”

Other safeguards, like encryption and website security, are also being used to assuage customer concerns. Fintech ensures that online lending is as safe as modern security standards allow it to be.

Richard Agu is a researcher, entrepreneur and freelancer, passionate about entrepreneurship and self-development. Currently, Richard writes for Entrepreneur.com, Goodmenproject.com, among others. Follow him on Linkedin.com by clicking here now.

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With nearly half the population struggling to get a loan, the need for fintech is evident. When it was first introduced, fintech startups exploded. Now they’re changing the status quo for lending.
fintech, lending, process, financial, technology
Thursday, 05 April 2018 06:35 AM
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