Technology, without a doubt, has transformed the lending industry. Put it this way, when was the last time you actually walked into a bank and spoke with a teller? Whether you need insurance quotes or lending products, all you have to do is sit in front of your computer to fill out an application.
You no longer have to visit your local insurance agent or bank/credit union to fill out an extensive application. In addition, the peer-to-peer lending market is experiencing massive growth. This is partly due to an increase of regulations on the finance industry.
Nonetheless, technology has enabled innovative means of lending and borrowing money through accelerators, incubators and crowdfunding. Starting a business, or getting funding for your next great idea, can be as simple as sharing it with a peer-to-peer lending community and seeing how much support you can receive.
So, how is the lending industry handling disruptive technologies? Keep reading to find out.
Financial Technology (FinTech)
Between 2010 and 2015, the FinTech industry has risen from receiving $1.8 billion in investments to $19 billion. Yes, that’s billion with a “B.” In addition, it has been reported that there will be a 67% increase from Q1 2015 to Q1 2016. It is quite obvious that financial technology is disrupting the market and the lending industry.
It is not only strengthening the position of small businesses in the marketplace, but is opening the door for formerly “invisible” groups of the population. Just consider the rise of peer-to-peer lending. At one time, small businesses could only get approved for loans after meeting specific standards of stringent criteria.
That is not the case today. Peer-to-peer lending has made it possible for the average person to become a business success, just by putting their idea and plan out there. If enough people believe in your innovation, you can receive funding necessary to get started. This is something that was nearly unheard of about a decade ago.
And, through peer-to-peer lending–think of all the technologies and even movies that are now being made. It has democratized an industry that once seemed cold and elitist. Svein Andresen, Secretary General of the Financial Stability Board (FSB), said that FinTech promises to provide:
- Greater access to and convenience of financial services
- Greater efficiency of financial services
- A more decentralized financial system
You can’t argue with the way FinTech is driving the industry. In his annual letter to shareholders, Jamie Dimon–Chairman and Chief Executive Officer of JPMorgan–wrote:
“While many FinTech firms are good at utilizing new technologies, we should recognize that they are very good at analyzing and fixing business problems and improving the customer experience (i.e., reducing pain points). Sometimes they find a way to provide these services more efficiently and in a less costly manner; for example, cloud services. And sometimes these services are not less expensive but provide a faster and simplified experience that customers value and are willing to pay for. You see this in some FinTech lending and payment services.”
Dimon stated that FinTech will enable financial institutions, and the lending industry, to execute services faster, through mobile devices. As a result, financial services will be more convenient and less expensive for consumers. Plus, it will allow for more low-income people to join the global banking system.
In terms of the lending industry–take a look at small business lender credibly. This company has funded over 6,000 small businesses with around $300 million in loans. Charlotte Petris, the Founder and CEO of Timelio, an Australian company that allows businesses to boost their cash flow by selling invoices online stated:
“Increasing the awareness of new financing options for consumers and SMEs will help businesses across Australia take advantage of new opportunities for growth and create new jobs. Access to finance for businesses is proven to increase turnover, employment and profitability.”
The cloud is a good place
Even in a robust economy, many lenders can struggle to manage cash flow. This is also often exacerbated by the types of IT systems lenders choose to use. Unless they are running a tech startup, most CEOs are not very IT-savvy.
If the company is small, sometimes, spreadsheets and word documents are used to get by. That will hardly meet current compliance requirements. Also, without deep insight into a company’s liabilities and responsibilities–it can be difficult to build strong relationships with necessary and needed business partners.
This is why lenders need sophisticated business management software with built-in analytics. Projects are challenging, there are many requests made for complex loans today. Software needs to be easy to deploy and maintain, while being cost-effective.
Plus, data entered into one application–such as marketing–should be immediately updated in others such as sales. Manually inputting data into each application wastes time and resources. So, the answer lies in the cloud computing model. This helps lenders gain freedom form costly and complex on-premise projects. Instead of tying money up in IT infrastructure, that money can be used for loans.
The reason is the cloud requires minimal upfront investment and can be paid for on a monthly subscription fee. Furthermore, users and functionalities can be added as business needs arise.
With the rise of online platforms, anonymous processes are rewarding borrowers with affordable loans and investors with an interest-laced investment. In contrast, banks have to hold reserve capital for every loan. As a result, lending marketplaces have disrupted conventional banking.
Most are online, or on mobile platforms, dedicated to transparency and the customer experience. Overhead costs are minimized since direct communication through the Internet removes the need to hire more staff. Through the cloud, big data and powerful algorithms, lenders are becoming much more effective at vetting client risk.
Even Wall Street power player, Goldman Sachs, recently launched its online lender Marcus to enter this space. This means that security is of utmost concern. Handing cyber security management to a cloud platform is much more reliable than trying to manage it on your own.
The lending industry has undergone a transformation, and will continue to do so. None of these changes could have happened without the cloud. Are you interested in utilizing cloud services to further disrupt the market? Call us today; we’d love to help you achieve your goals.