The term “disruptive technology” is often overstated, but when it comes to Fintech, it couldn’t be more accurate. Fintech is threatening to put the whole world of banking on its head, and could allow the billions of unbanked and underbanked around the world get access to financial services they never had access to before. It’s also reimagining what it means to be credit worthy, and offers tons of opportunities for people who would’ve been otherwise ignored by major banks. Let’s take a look at a few ways Fintech is revolutionising the world of lending as we know it.
Fintech Could Eliminate Credit Scores All Together
We could see a future where credit bureaus will either become completely obsolete, or change their models to fit the new reality. What Fintech is doing is finding new ways for borrowers to prove their creditworthiness by looking at other factors.
The under and unbanked often don’t have access to the instruments that would allow them to build a credit history, but services are already being rolled out that monitor a potential borrower’s spending habits and purchase history using algorithms to assess financial ability in real time. This could be a major game changer and give more buying power to an underserved class of borrowers.
The Client is Now King
Loan comparison sites are putting the power back in the hands of borrowers. Services like Simple Personal Loans offer loans with bad credit UK based residents can apply for from a variety of potential lenders at a touch of a button.
Another thing that’s great about these services is the ease through which borrowers can apply. Minimal or no paperwork is needed, which is not only great for those who don’t have the luxury to have a branch close to them, but eliminates much of the hassle of having to go through an interview with a loan officer. Online loans could easily become the norm over the next few years, and banks will have to do better to attract new clients who will now have a quasi-infinite number of options at their fingertips.
A Godsend to SMEs
Small and medium businesses have also been feeling the crunch due to new legislation that forces banks to maintain higher capital ratios. This forced many banks to be more selective as to whom they can lend to. Banks now have to de-risk balance sheets, and rebuild their capital bases.
SMEs on the other hand tend to be risky for banks, especially when it comes to cash flow issues. Many SMEs use financing to fill short term gaps, which is not what major banks are looking for. But instead of limiting the options for lenders, it created a market of digitally driven flexible lenders who are much less risk averse. These lenders use cloud technology and advanced data analytics tools to provide borrowers with fast and frictionless access to funds never seen before.
Fintech is the future of lending, and unless big banks decide to revise their strategies and look out for those who need their services the most, they’ll find themselves in an uphill battle. We can expect Fintech to become even more sophisticated and legitimised in the future, allowing it to gain even more market shares in the lending industry.