For years, formal lending channels in the UK were the only way for banks and financial institutions. At that time it was not easy for small business and startups to get the funding needed for their business.
They had to go to the informal lending sector to meet their requirements. This means taking a loan from money lenders at a very high rate.
Technical Revolution in the Lending Industry
The increasing penetration of internet throughout the country and fast adoption of technology by all are contributing to a revolution in the lending industry in the UK. FinTech companies have changed the ways of lending that have been in use for years.
Before we go deep down at how FinTech companies have changed the outlook of lending, let’s have a brief look at how the traditional lending process used to work.
Traditional Way of Lending
A bank takes a deposit from customers and provides interest to them. It then gives these deposits to other borrowers at a high rate of interest that what it offers to depositors. By doing so, a bank is able to make a huge profit. This is how a bank functions.
The underlying fact is “charge borrowers more interest than the interest paid to depositors”.
Now is the time of high-tech lending and peer-to-peer lending is one among them.
Peer-to-peer lending or online lending is a platform which connects lenders with borrowers. This makes it possible for borrowers to get money at a lower rate of interest. Moreover, borrowers who were not eligible to get a loan from a bank or any other financial institution can get the loan very easily.
There are many other lending facilities supported by the latest technology. Let’s have a look at them.
Offering Huge Number of Niche Products
For years, banks dealt with the same loan products. With the introduction of technology, online lending agencies could do a proper analysis of the requirements of their customers with the help of technology and design products which suits them.
A line of listing, business invoicing, line of credit, very bad credit loans with no guarantor from a direct lender, etc is some of the unique and niche products launched in the lending market which is possible due to innovative tools and process.
Fast Approval and Lending
Earlier, loan application, approval, and sanction all were time taking and complex. You had to go through a lot of paperwork and too many official formalities before you could get the loan.
But with the introduction of technology in the lending process, FinTech companies removed the paperwork and hopeless waiting in the queue. Today, you can apply for a loan from the comfort of your home and can receive the amount into your account within 24 hours.
Conventional lenders used to have a look at your credit score to determine your eligibility to get a loan. But with the introduction of FinTech companies, they look at various data before approving your loan application. Due to the introduction of innovative technology, it is possible to collect data immediately and determine the creditworthiness of borrowers.
Automation of Lengthy Process
Apart from checking the creditworthiness of borrowers, FinTech companies also make use of technology to automate the regular and lengthy process. For example, some lending companies are making use of software to check risk, thereby speeding up the lending process.
With the help of automation, FinTech companies are able to minimize the costs which in turn help the borrowers with a lower rate of interest.
Loans Available For Almost All Type of Borrowers
Startups, small business owners and bad credit borrowers find it difficult to take a loan from a traditional lender. This becomes even more difficult when they don’t have collateral or someone to co-sign their loan.
Thanks to innovative lending methods of direct lenders, all those borrowers unable to get a loan can benefit from it.
Since online lending agencies make use of the latest technology, they don’t compromise on technology. This indicates that customer’s details are safe and all possible measure is considered to avoid data encroachment.
“Banking is essential, banks not”- Bill Gates
Financial technology is changing the landscape of the lending market in an exciting way. Right from your interaction to the lenders, to loan processing and disbursal time, technology is revolutionizing the lending market in an unprecedented way.