As technology evolves continually, it is required by the banks and other lenders to make that required change in their digital banking ideas, especially when it comes to money lending. Improvement in technology has empowered common customers and they are now more informed about the scopes and opportunities in banking. They look for better products and higher level of customer service and are not afraid to turn to alternative sources even for that matter.
All these changes in customer behavior and demand have had a dramatic effect on the operation of the banks of today. Typically, banks rely heavily on their age-old tried and true operating models. However, it was effective in the last decade. Now, it is required to develop these models even further as there has been a significant shift in the market with a host of new players coming in.
Most significantly the Fin-Tech companies have created a dramatic effect and brought in significant changes after entering into this landscape. This effect has been studied by Price Water house Coopers through in their survey of global financial executives. According to their report, it is revealed that:
- 83% of the traditional banks and credit unions believe that their business is at considerable risk of losing on to the standalone Financial Technology or Fin-Tech companies.
- The figure reaches even more to 95% when only the bank executives are concerned.
In addition to that, they also suggest that the spirit of Silicon Valley is already showing its effect on the financial services industry due to Fin-Tech which is one of the biggest developments in financial services in the past few years.
Experts say that these Fin-Tech companies have brought in different changes in the financial services industry. At all levels, these companies have made financial services better in many ways.
- It is now more transparent, efficient and user-friendly
- It has new financial products and services
- It offers new ways of processing payments and moving money
- It has developed new ways of cutting costs
- It has improved the user experience and
- It has raised the bar while dealing with the financial system.
One of the most affected areas of financial service with the advent and use of fin-tech services is also the one that has been the quickest to adopt these new technologies. This is the online lending service that has created a new market for alternative sources of borrowing money both for the businesses as well as the individual consumers.
The online lenders like nationaldebtrelief.com who are also called the marketplace lenders, P2P lenders and platform lenders have incorporated technological innovation that has helped them to drive efficiency in their operation, cut operating as well as borrowing costs and at the same time expand their scope and business opportunities.
Fin-Tech Services are more data driven
Financial technology cuts cost by offering loans online. They can operate a business model that is not only effective but is much more cost-effective as compared to the business models followed by other traditional banks.
Use of technology has eliminated the need for maintaining a wide network of bank branches. In turn, it has reduced the cost of operation in the form of:
- Establishment cost
- Expensive legacy IT systems
- Staff and other factors.
As the online lenders do not have to focus on these matters, they have enough spare time to devote to their business operation and provide better service and products more efficiently.
The API-first approach followed by the online lenders is helping them to drive digital transformation into banking making it easier and further possible for them to lower the costs of borrowing for their customers. In addition to that, the use of advanced technology has also helped them to extend loans that are typically unavailable from a traditional and more cost-conscious bank.
According to The Economist, the ongoing business expense of the online lenders as a share of the outstanding loan balance is only 2% as compared to 5 to 7% for any traditional lender. This means, with such a low-cost structure the online lenders are better off to make more affordable loans or those types of loans that were never available before.
Since the services of the online lenders are more data-driven, they can find innovative and useful ways to assess risks and identify the creditworthy borrowers rather than relying solely on the credit score of the borrower. The broader range of data helps them to determine other risk factors such as whether a borrower may qualify for a loan and repay it back to them along with interest.
They source these data-driven lending factors from different sources such as social media reviews, accounting records, online sales totals, and shipping data. All these figures and facts gathered by the online lenders are far better, fairer and more egalitarian than the credit scores alone. These figures help them to be more accurate and fast in the loan application process than a traditional bank.
Change in traditional bank landscape
The Fin-Tech Services movement has brought in the change in traditional bank landscape. It is the four commonly believed Fin-Tech disruptors that are changing the ways in which consumer behavior and expectation which is, in turn, providing inspiration for the banks or credit union.
- Peer-to-Peer Payment Systems: This is gaining traction due to its convenient and paper-free payment approach using only an app. It is completely digitalized and almost immediate that provides consumers with autonomy.
- Artificial Intelligence and Machine Learning: Using AI and machine learning enables faster and low-rate payday loans. It can process enormous amounts of data to find the pattern of creditworthiness or lack thereof. Working on its own it can relate data and algorithms, reduces loan costs, offers loans faster, and more unbiased creditworthiness and accurate interest rate.
Use of technology has given a twist in lending services. In this world where mobile phone plays a significant role, embracing mobile technology is in vogue in the banking sector. It has in short provided more transparency and has put the consumer in control of their own financial health.
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