Technology is disrupting almost every sector and finance is certainly one of them. One key area in which new technological advances are already making a huge impact is in lending. The coming years are likely to see a trend for quicker transfers, greater transparency and fairer terms for borrowers as a result of these changes.
In this article, we run you through four of the key areas where tech is already disrupting the lending space and where it is set to continue.
Blockchain & Cryptocurrency
Blockchain works on the concept that information which is stored across multiple devices is much more secure than that which is kept in one specific place. For example, where a bank may hold the information on your bank balance in one area, someone need only change that one record to tamper with your balance. In contrast, in blockchain, they would need to change the data on multiple devices at the same time.
Cryptocurrency is underpinned by blockchain technology, meaning it is arguably more secure than other types of currency or asset. This makes cryptocurrency a very enticing and secure form of collateral when used against a loan. This could revolutionise the lending space, making it much easier and less risky to secure a loan in cases where the borrower has illiquid assets in the cryptocurrency space.
The level of security offered by blockchain and cryptocurrency could also drastically lower the amount of fraud within the lending space, making it less risky for lenders, in turn making borrowing cheaper.
Faster Application & Acceptance
The internet has always promised to rapidly increase the speed with which information is processed, allowing for previously laborious processes to be significantly quicker. We are now starting to see this being applied to the more traditional loan space.
For example, small loans which previously could have taken days or even weeks to process through a bank can now be secured in a matter of minutes through online portals like Instant Lolly.
We now live in a world where everything is getting faster, so the need for cash is often unforeseen and immediate. With this in mind, we are likely to see borrowers expecting rapid transfers, with businesses that fail to do so ultimately failing to maintain their customer base.
Peer 2 Peer Lending
Peer 2 Peer (P2P) lending does pretty much what it says on the tin. New technologies, including blockchain, are now making it safer for individuals to lend to each other rather than using the bank as the ‘middleman’.
This offers two key benefits. Firstly, borrowers are much more likely to find a willing lender due to the varying appetite for risk and reward. Where banks will only take a limited amount of risk, making it difficult to secure funding if you have a poor or limited credit score, more ambitious P2P lenders are likely to lend to higher-risk borrowers to generate higher returns.
Secondly, since you are cutting banks out of the deal, interest rates can be lower for the borrower whilst profits for the lender remain high.
Crowdfunding
Crowdfunding is now a very popular way to raise funds for several reasons. Platforms such as Kickstarter have made it easier than ever to collect funds for everything from new businesses to community projects and social causes.
However, crowdfunding is not lending in the traditional sense. Usually, lenders do not expect to see their money back, but may receive exclusive benefits, product or services in return.
Technology is slowly but surely completely changing the lending landscape. Current trends in this space are going to see borrowers get used to quicker transactions and fairer deals when it comes to interest. Lenders that keep up with these trends will thrive, those that don’t will ultimately fail.
