TMCnet Feature
February 18, 2020

How Lending Has Changed with FinTech Innovations

In a world that is becoming more and more impatient and used to getting what it wants in an instant, all areas of tech are pushing the boundaries to ensure demands are met. With shortening attention spans partly to blame with the need for everything ‘now’, the banking and lending world has been ensuring it’s staying up to speed with what the 2020 consumer wants. With the news that Goldman Sachs is teaming up with Amazon to “build technology to facilitate the offering of loans to small and medium-sized businesses”, it’s increasingly apparent how crucial a role technology will have in the next stage of lending. But what are the ways innovations have already made changes to the way we do our banking, and what is the future?

  • Online Banking’s Rise

Throughout the internet age, companies have looked to take advantage of consumers being able to shop and do things from the comfort of their own home, all without having to visit anywhere or speak to someone over the phone. Internet banking went from being something that a lot of consumers were wary of doing, to one of the most common ways to interact with your bank account and lending products today. With changes from dial-up to broadband and onto fibre optics, the speed of which this could be done, along with advanced security, has made it difficult to imagine not having online banking as an option. The easy access to your bank account online completely changed the way the big banks approached personal and business banking, and when smartphone technology arrived over a decade ago, the landscape changed very quickly. 97% of millennials use mobile banking, whilst 91% of generation X and 79% of baby boomers state the same, according to a survey by Business Insider, showing it’s not just a trend with the young.

Trust and security are the biggest obstacles the banks had to overcome when pushing online banking to consumers, leading to huge steps made in encryption and the way in which you can access your personal information. Things have changed so much in the last decade and have integrated into society so quickly, it’s all too easily taken for granted. That’s why we have reached a point in 2020 that speed has become one of the biggest USPs for the various lenders that exist online. Alongside security, how quickly a consumer can get what they want has become a key part of fintech innovations. The advancements in artificial intelligence and machine learning technology have paved the way for a much more personalised service. The emphasis on mobile banking and implementing UX design that incorporates mobile first and desktop second means a consumer can find what they need with just a few taps and swipes. Applying for borrowing is now a very quick process, with many lenders offering an ‘instant decision’ with ‘same day funding’. It’s a long way from dressing smartly for an appointment with the bank manager.

  • Speed and Security for the Win

With expectations extremely high due to technology innovation that runs much of our lives, the lenders and banks have had to ensure that they too can offer speed and security above all. If they don’t, they are in danger of being left behind. The ease now that a consumer can compare loans and find lenders in a heartbeat, going beyond the traditional banks, means finance companies cannot afford to be left behind. So how then do companies offer an ‘instant’ service? The answer lies with the approval process which years ago would take a long time. Whilst still needing to follow strict lending guidelines, lenders can now offer approval with less information alongside your credit file. Advancements in machine learning technology have meant that the relevant information a lender needs to access can be done under a minute, providing a decision in an ‘instant’. Going forward into a new decade, this process will only get closer to actually being instant (within a few seconds). The same goes for a consumer receiving the lending amount into their account, which can currently take a few hours to a day or so depending on the lender.

With all this speed, how can the banks and online lenders offer a fair service? After all, the financial crisis of 2008 is still in the memory for some with how reckless some lending activity had become. The answer is with FinTech using much more sophisticated and advanced levels of AI and machine learning. A lender can see your credit file and your current income and expenditure very quickly during a decision, doing so much quicker than a decade ago. This is all made possible and kept secure because of encryption. The reason millions of us worldwide trust online banking platforms is because of the levels of encryption offered, something that has become part of life whether you’re buying groceries online to purchasing flights. The innovations are so efficient, you don’t even realise they are there.

  • Where is it All Heading?

Everything peaks, no matter what industry you are in. Once fintech gets to the point of being able to offer instant banking with no loading times and no decisions within seconds, where can it go? Well, it will come down to further enhancements in security and other experiences consumers have with their finances. From a business point of view, the further automation of the banking industry will ensure error-free, real-time products and services that will become increasingly competitive amongst lenders. Over the next 3 to 5 years, 82% of financial institutions expect to increase FinTech partnerships. This all points to an increasingly bright future for both FinTech companies and banking in general. Quite simply, the two cannot exist without each other going forward.

Offering a faster service and more tech advancements in all aspects of finances and banking doesn’t come without its concerns. At what point does the technology available reach levels of unnecessary innovations? For example, no-one is demanding an augmented reality (AR) experience when they want to check their bank balance. It needs to continue to be useful to both the consumer and the lender to justify its existence. This is the challenge for those creating the FinTech that will become the norm over the next few decades.

  • Can the Cloud Help Further?

One of the biggest advantages cloud services have provided since their conception is reduced costs and access wherever you have an internet connection. Storing files online has become pretty simple and in some cases essential to work. For banking purposes, cloud storage provides an opportunity for lenders to get easy access to details about borrowers that can help with the speed of a decision to lend. Storing these details online in a cloud network rather than within a physical store’s computer network means better communication and quicker results. This leads into automation and the software available to take away time-consuming tasks such as admin from human input. Automation that works alongside cloud technology can streamline most processes and help propel the speed of which decisions are made even further.

  • Rise of the Start-Ups

One of the biggest challenges the traditional banks are facing is the emergence of start-ups that have really got a grip on what the modern-day consumer wants. According to PWC, 75% of senior financial and FinTech executives feel that start-ups are likely to be the most disruptive in the financial sector over the next 5 years. This is along with 68% feeling the way payments are made and 58% saying personal loans will migrate to a FinTech company in the next 5 years. The traditional financial institutions are worried about keeping up with the newest innovations, with crowdfunding platforms such as Kickstarter and Patreon providing start-ups with a way to get funding fast. The way mobile payments have risen in use, through the popularity of features such as Apple (News - Alert) Pay and contactless technology, has meant that many people can do everything they need right from their mobile device. Convenience is key to what most people look for when having to complete a task or achieve their goal with their finances.

The emergence of cryptocurrency also has proved to be a disruptive influence on consumers behaviour away from traditional means. In a world where digital currency can be traded, bought and sold, although only around for a few years, has meant the possibility of consumers using it to replace the traditional methods of purchases online including lending. The speed of which new FinTech innovations are created means it can be overwhelming for both the consumer and the lender when trying to stay on top of the best new tech.

  • Tackling Fraud Along the Way

With so many start-ups and new technology now existing thanks to FinTech advancements, the concerns over fraud and security are an understandable side effect. The biggest challenge is keeping consumer’s data safe and ensuring any online transactions are as secure as possible. With innovations in lending, there also lies innovations in the way fraudsters work. Trust has to be a fundamental part of a start-up’s success in showing consumers and lenders that security is taken seriously.

Fraud-detection is increasingly sophisticated to make hacking an app or server extremely difficult to bypass. This is where AI and machine learning can analyse huge sums of data to look for the types of pattern that can alert to fraudulent activity as it happens. The more data it collects the more it learns and helps to fight fraud from effecting you and business alike. Concerns of online security are paramount in the minds of senior financial and FinTech executives, with 58% surveyed citing IT security as the biggest challenge. It’s clear that for FinTech to continue to rise in the next decade, many different aspects have to be considered and addressed.

  • A Bright Future

Whatever your stance on the way FinTech has impacted traditional banking and lending, it is universally agreed that the changes have been for the better. The convenience in which you can apply for a loan, manage your accounts, make payments and interact with a lender all from your mobile device is something that has enhanced millions of people’s lives across the world. All of these processes were once just an idea that would have seemed extremely difficult to implement not that long ago. Within a generation, the way we interact with money has vastly changed meaning the future will change this even further. Generally speaking, the positives far outweigh the negative aspects associated with online lending, as long as enhancements to security and fraud prevention continue to keep FinTech advancements secure. The possibilities are influential and indeed endless as far as FinTech is concerned.

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