Use of the latest and most sophisticated technology in the lending industry is supposed to be the most significant disruptor just as it is in any other industry. As a result, technology has directed several industries towards a massive explosion and the lending industry is no exception to it and is not to be left behind.
Over the years it is seen that when it comes to formal lending channels that were the only purview of the traditional banks and other non-banking financial institutions, it was not very easy for those small businesses or start-ups to get easy access to them.
- It meant that they found it hard to raise the required capital for their business.
- It was found that in most of the cases had to pull down their shutters early.
This is because they could not deal with the financing needs for operation and survival through the initial and developmental stages.
In such situations, small business owners and startups that are courageous and have the ‘will not give up without a fight’ attitude looked for alternatives sources of funding their business. Thanks to the age of technology and its extensive use in the lending industry, they have found these sources easily to get whatever amount they require.
This has ensured that they now do not have to resort to the sources for borrowing money to meet with their emergency cash requirements that are:
- Informal and
- Known to charge astronomically high rates of interest.
In addition to that, they now do not have to turn towards their family or friends for financial assistance, with unwanted cautions as well, or to their dipping and meager life-long savings. Why? It is all due to the emergence of technology and its use in the lending industry symbolizing the era of a technological revolution in this industry’
The era of technology
It is all due to the increased penetration of the internet in almost all corners of the business and personal use across the country and the world. It is due to the realization and rapid adoption of technology by all industry sectors as well as all strata of people.
This has in fact spearheaded a silent revolution throughout the world across all industry sectors and has made the unorganized lending industry more formal, safe, secure and perspective. In short, the rise of the fin-tech companies have changed the ways of lending money replacing those that have been practiced for generations.
As far as the traditional lending methods are concerned, the process followed involved:
- The bank inviting deposits from customers against a fixed interested provided on such deposited amounts and
- The deposited money was then provided to the other borrowers charging them a rate of interest in doing so that is higher than the rates offered for depositing money.
In the process the banks were able to make a lot of profit. This process ideally was based on the principle ‘charge the borrowers more interest than the interest paid to the depositors.’
However, things were not so rosy and picturesque because the risk of lending was always there. People often fell back on their repayment schedule and only a few looked for debt relief options to come out of it. It is unwise to believe that everyone who fell behind will take the pain of looking for the best debt settlement or debt consolidating agency after researching several sites and analyzing different lending reviews and ratings.
The benefits of technology integration
Nevertheless, ignoring the risk factor for time being, the advent and use of technology in lending has provided more benefits than downsides.
- PeertoPeer lending: This is a win-win situation both for the lenders, who are typically individuals, as well as for the borrowers. The lender can make a profit in terms of interest on the amount of money lying idle with them and the borrowers can borrow money at an interest rate that is much lower and far more easily available as compared to traditional banks. The fin-tech companies make such arrangements possible through their online lending platform by connecting lenders with the borrowers in exchange for a small brokerage fee.
- Array of niche products: The most significant benefit of use of technology in the lending industry is that there is a wider variety of niche products available to borrow. It is for years the traditional banks offered the “onesizefitsall” loan products that the borrowers had no other way but to agree to accept. With technology and the emergence of the online lending firms, the lending companies now can make a detailed analysis of the specific needs of the customers and design several niche loan products to cater to the diverse segments of users. The use of innovative tools and processes in the lending industry has brought in a few unique products and financial services such as business invoicing, loan listing, a line of credit, investment management, factoring loans, credit counseling, and loan comparison.
- Faster loan process: It goes without saying that use of technology expedites any working process and ensures it is flawless. Similarly, you can expect faster loan approvals and easy disbursement of funds with the use of technology. In the traditional lending settings loan application and sanction took a lot of time and was often complicated with its tedious paperwork required not to mention the red tape before you received the loan amount. With fin-tech, such requirements are eliminated making the endless wait and mountains of paperwork to naught.
- Data utilization: You must know that your credit score is the primary tool to determine your loan eligibility and banks use it extensively. The fin-tech companies on the other hand, use a wider set of data to determine the creditworthiness of the borrowers in seconds using specific factors such as social media ranking, future potential of the business and educational qualifications of the borrowers to name a few.
Therefore, it can be concluded that financial technology is poised to change the lending process and industry massively, proving beneficial for both, borrowers and lenders.