Technology is introducing major changes into almost every industry in the world, with many previously human-operated systems becoming automated. The lending industry is no exception, with fintech providing platforms for a new form of lending aimed at small business owners and consumers. You can learn more about what fintech is by reading the PDF attachment to this post.
New lending models have been introduced that make it easier and faster for small businesses and consumers to access funding. Asset-backed lending can often be provided to SMEs that have an underlying security such as real estate through a peer-to-peer lending programme, removing the need to apply for finance from a bank or other large financial institution. Matthew Ledvina is a director for a Fintech company in London which focuses on asset-backed lending.
New Models for Lending
One of the earliest new models for lending introduced by fintech was the peer-to-peer lending platform. You can find out more about P2P lending by watching the short video attachment.
Traditionally, banks secure deposits from customers and offer them a small amount of interest in return. This interest is generated through lending that money to other customers, who must then pay it back in instalments at a higher rate of interest than is offered to the depositors, thereby making the bank money.
With peer-to-peer lending, fintech has created platforms whereby individuals can lend money to other individuals or small businesses, sometimes with tens or hundreds of lenders contributing a small amount to the same business or individual. As this money is paid back by the borrower with interest, the lenders make a profit. The platforms also take a small brokering fee.
Speed and Efficiency
One of the benefits of peer-to-peer lending is that it is often much faster and more efficient than accessing traditional financing. Bank loans, for example, can take weeks to be approved. Even credit cards, which can be approved quickly online, can take days or weeks to arrive. As peer-to-peer lending companies have a pool of lenders ready to offer financing, this type of funding can often be approved within 24 hours or less, with the borrower receiving the funds within that time frame. Some platforms are even faster, offering a decision in minutes and delivery of the loan immediately upon approval. The core of the process is data connections – the more data that can be connected, the faster and cheaper the process is to engineer efficiently.
In the infographic attachment you can discover some of the top P2P lending platforms currently operating in Europe.
Data Utilisation and Automation
Fintech can utilise huge amounts of data incredibly quickly, using this data to determine how likely the borrower is to be able to make the loan repayments. Data can be collected from multiple sites including PayPal, eBay, Amazon, LinkedIn, Facebook and many more to extrapolate a credit profile of the borrower in minutes or even seconds. The underwriting process can also be automated which ultimately saves both time and money, making the process faster and cheaper to operate. This includes automated risk assessment, which enables fintech platforms to offer loans to individual and business borrowers at competitive rates without unnecessary delays.
Security and Safeguarding
Fintech companies have a strong focus on safety and security as they are used to working with technology. Various tech measures are put into place on P2P lending platforms to ensure customer details are secure. These include the use of tokens so that data from third-party sites is seen only briefly and is not taken or saved.