New breeds of entrepreneurs have made headway into the lending business as advancements in technologies allow them to offer consumer lending as a service.
Where before, unsecured personal loans were not easily accessible to ordinary consumers if applied for in banking institutions. The only type of unsecured loans to use for personal purposes are the financial products of credit card companies.
However, many consumers later found themselves trapped in a system that was designed to keep their credit obligations outstanding and surmounting with continuous additions of interests and surcharges. As a result, a generation of credit card borrowers ended up with poor credit history and failed credit scores.
Fortunately, a new generation of innovators who used their deep knowledge of finance, developed technologies that made the business of lending customer-centric and at the same time provide investment opportunities to ordinary investors. Advancements in financial technologies empowered entrepreneurs to provide financial services, whilst allowing lending and investing activities to flourish as businesses.
Peer-to-Peer Lending Platforms
Traditional banks impose higher loan rates and as much as possible extend loans only to those that can offer a collateral of some form, which can be a real property, chattel or a deposit account. Fintech lenders can afford to offer unsecured personal loans for the following reasons:
1, The sources of their lending funds are mostly small scale investors looking to put some of their savings in financial products that will realize better if compared to the interests earned on savings deposits placed in traditional banks. On its part, the peer-to-peer lending platform will make sure that the money invested by a pool of investors will be lent out only to borrowers who have been vetted and verified as responsible creditors. The method therefore creates a win-win situation for both investors and borrowers.
2. Through technologies that can perform database verification methods as well as quickly gather other data available in the Internet, particularly social media sites, fintech lenders acquire knowledge in assessing an applicant’s reputation and purchasing behavior.
Buy Now and Pay Later Offerings
Many Fintech serve consumers by offering Buy Now and Pay Later (BNPL) offerings with different payment plans as options; often on a same day approval basis whilst requiring few documentation and at zero underwriting costs. MOst BNPL arrangements are made through collaboration with ‘Buy Now and Pay Later. The monthly payments are fixed and clearly stated as opposed to credit purchases, where the monthly payments due tend to increase because interests are being compounded monthly.
Fintech companies offering BNPL funding solutions usually collaborate with the original equipment manufacturers (OEM) by giving the latter access to consumer data. OEMs in return will use such data in gaining insights as processed by AIs. Artificial intelligence will analyze the data and present information for manufacturers to use in developing goods, customized to the needs of many consumers. It’s actually a simpler and more economical approach to carrying out research and development that is focused on catering to specific targets.
APIs or Application Programming Interface
APIs are among the most important innovations in financial technologies. Providers of API platforms allow investors, borrowers, retailers and lenders to connect their digital wallets, payment gateway accounts, point-of-service machines and/or digital bank accounts with different financial institutions. The instant connection makes it easier for parties to a transaction to effect payment or to receive payment whilst using mobile applications.
Cash.com provides more detailed information about these innovative lenders, specifically Avant, Lightstream, Marcus (by Goldman Sachs), Payoff, and Upgrade.