Fintech Lending: Disrupting Traditional Loan Processes

Fintech lending is transforming the financial industry by offering efficient and faster financial services than traditional loan processes. There are estimates of the global Fintech lending market reaching almost $4,957.16 billion by 2030, with a CAGR of 27.4% from 2021 to 2030.

With the growth of the Fintech industry, digital lenders use data analytics technologies or cutting-edge AI technologies, disrupting the traditional loan sector. To subsist in the tech-heavy competitive market, traditional lending and financial institutions must learn financial technology and Fintech lending.

Let us explore Fintech lending, its way of working and how it is disrupting traditional loan processes.

What is Fintech Lending?

Fintech lending uses digital solutions and technologies for facilitating lending processes. The process uses APIs so that lenders can take informed and quick lending decisions. The services include business loans, peer-to-peer lending and different tools for finding the best loan. Payments are great with Fintech as customers experience secure and fast transactions on their mobile devices.

With Fintech, lending opportunities are higher as lenders with poor credit scores can also apply and get loans. API connections accelerate the processing times so that timely fund access is available for peer-to-peer lending and small businesses.

Fintech companies have revolutionised lending using data analytics and AI. For streamlining payment processes, they use various kinds of digital media including mobile wallets, online bank accounts and e-commerce accounts. There are minimal scopes of fraud and borrowers get timely access to the funds.

Fintech lending lets lenders apply for different financing solutions from any part of the world. This is a self-reliant and initiative-taking approach to money management.

Innovations and Trends in Fintech Lending and Credit

Let us take a look at some of the innovations and trends in Fintech lending and credit:

Alternative credit scoring

Fintech lending and credit use different data sources for ascertaining the creditworthiness of a customer beyond traditional credit scores. Alternative credit scoring uses different kinds of non-traditional data like social media behaviour, payment history and other online activities for assessing credit risk.

Therefore, businesses, as well as individuals with no or limited credit history, have credit access, thus expanding financial inclusion.

Micro-lending and digital wallets

One of the most popular Fintech lending and credit solutions is none other than mobile wallets or digital wallets. With these wallets, customers can borrow, store and transfer money digitally.

Micro-lending provides small loan amounts for a short span of time. This lending is facilitated through digital wallets. People with a limited credit history or belonging to emerging markets can access credit through this process.

Online lending platforms

In the Fintech space, online lending platforms, which are also called peer-to-peer (P2P) lending platforms, have become immensely popular. Through these platforms, borrowers can connect directly with investors. There are no financial intermediaries in between.

Online lending platforms assess credit risk by using data analytics and various kinds of algorithms for determining loan pricing. This is the reason, they can provide lower costs, faster loan approvals and improved transparency compared to traditional lenders.

Blockchain-based lending

Blockchain technology offers a transparent and decentralised ledger for transaction recording. Such lending platforms reduce fraud, remove the need for intermediaries and improve transparency in loan transactions.

Smart contracts (they are self-executing contracts) are recorded on the blockchain. This helps in automating repayment terms and loan agreements.

Open banking and APIs

In open banking, businesses and consumers can share their financial data securely and safely with authorised third-party providers. This is a great innovation in Fintech lending and credit.

Application Programming Interfaces (APIs) provide integration and data sharing between different service providers and financial institutions. This aids in improved risk assessment, quicker loan processing and improved customer experience.

Machine Learning (ML) and Artificial Intelligence (AI)

When you learn financial technology, you must have good knowledge of cloud computing, ML and AI. A Blockchain course is also useful. There is extensive use of Machine Learning and Artificial Intelligence in Fintech lending and credit for automating processes, making accurate credit risk assessments and analysing huge volumes of data.

Virtual assistants and AI-powered chatbots are used for processing loan applications and offering customer services. On the other hand, Machine Learning algorithms help in predicting credit risk and analysing borrower data.

RegTech for credit risk management

RegTech or regulatory technology is an excellent Fintech solution for credit risk assessment. Regtech solutions use automation and data analytics for ensuring compliance with various regulatory requirements. These include KYC regulations, anti-money laundering regulations, and so on.

With this technology, lenders can assess their credit risk while complying with various regulatory obligations.

Fintech Aids Value Addition to The Lending Industry

There is no second thought that Fintech has brought a revolution in the lending industry by providing borrowers with more choices and access. Moreover, Fintech offers innovative financing solutions to customers as per their needs.

With the advent of Fintech, small businesses as well as P2P groups have access to convenient funding for improving their financial well-being. Such funding also helps them in operating independently.

Fintech lenders use data for offering capital to a wide range of borrowers. At the same time, they can maintain safe lending practices, making a more competitive market.

In Fintech, the lending process is streamlined thus reducing the time and cost of lenders and borrowers alike. Borrowers can now receive fast cash with minimal hassles during loan application. As a result, the Fintech industry is expected to experience massive growth in the coming years.

Conclusion

It is needless to say that the Fintech industry is developing new fronts to cater to more customers. By using various Fintech platforms you have faster access to credit along with lighter underwriting and quick processing times. As this sector is new and developing, there are ample job opportunities opening up as well.

If you want to make a career in the Fintech industry, you have to learn financial technology in the first place. Undertaking a Blockchain course along with knowledge of cloud computing are an added advantage.

Imarticus Learning is a great platform where you can pursue a Professional Certificate in Fintech in collaboration with SP Jain School of Global Management. An excellent course, students can have an in-depth understanding of different aspects of Fintech along with strategic and practical training on technologies like Blockchain, cloud computing, API, Machine Learning, Artificial Intelligence, RPA and IoT.