• Chahat Jain

FinTech Deposits and Lending


Lending and deposits form a major part of any economy. The services of lending and deposits are mostly provided by banks, financial institutions, and the new FinTech companies. It helps an economy to grow and prosper. Ever thought that the traditional lending process has become very non-transparent and is becoming out of date? The use of FinTech overcomes the issues with the traditional lending system. Financial technology makes the lending process quicker and more efficient. It also enables lenders to cater to the needs of every individual in a personalized manner. Millions of people within India itself deposit money and take loans and any technology that makes this process easier is welcomed.


FinTech has revolutionised the lending process by reducing the chances of risks and fraud. Our environment is a super dynamic place. The world is heading towards an automated life where everything is just a click away. Consumers can now bypass going to the bank branches physically to carry out their transactions. Different companies across the world use different financial techniques for both back-end processes and consumer-facing processes. FinTech has almost eliminated red-tapism and has made the processes earlier for the users.


Digital deposits are a reality now and the banks do not need to rely on branches to accumulate deposits. Consumers get a better experience at a lower price because of the lack of traditional infrastructure. Some of the specific lending areas that have been most vulnerable to FinTech competition include mortgages, personal loans, student loans, and loans to small and medium enterprises (SMEs). Traditional mortgage lenders learn a lesson from FinTech: efficiency, speed, convenience, digital adaptability are essential to borrowers.


The FinTech landscape has expanded and gained popularity quickly owing to data science, complex algorithms, and machine learning. The use of blockchain technology and smart contracts enables FinTech to remove third-party verification. It also ensures greater transparency and accountability. The secure network enables all the parties involved to respond quickly and speed up the closing time. It also enables a better assessment of the borrower’s creditworthiness.


In fact, in terms of lean processes, technology enables these companies to do more than just check the credit score of a person. Data analytics and machine learning allow faster decision-making through better verification of a borrower profile. Machine learning processes data from several layers of data such as data from telecommunication companies, social media profiles, health checkup records, etc. Machine learning algorithms compare the data with thousands of other customers to calculate a precise risk score. A loan will be approved by these FinTech companies only if the risk score is below the set threshold.


Technology companies like Lenddo set up the idea of “using non-traditional data to compute people’s credit scores” and have also authorized their systems to other organizations. Kabbage is another example of a business that leverages data to provide finer, more agile, and more competitive loans to small businesses that are usually categorized by the traditional institutions as a high risk. Fundamentally, FinTech has been successful in reaching out its services to a wider audience.



However, the FinTech companies can still not replace the traditional banks altogether. According to S&P Market Intelligence, the origination volumes of major notable digital lenders have gone up to $41.1 billion (30.1% growth) in 2017 and are expected to reach $73.7 billion by 2022 (at a compounded annual growth rate of 12.4%). These growth rates are pretty impressive, but the bank industry’s total is around $9 trillion. These FinTech lenders still have a long way to go. Commercial and residential borrowers look for the best interest rates and terms, which are still provided by the banks. Apart from the borrowers’ dilemma, lenders tend to have some problems too with FinTech lending institutions. Information security and privacy are one of the major concerns. Apart from that, non-bank financial institutions are not regulated as tightly as banks are by the federal government. The traditional lenders must be careful before forming partnerships with FinTech organizations. They should look at the FinTech company’s willingness regarding the implementation of controls and study its compliance programs.


FinTech institutions have revolutionized the deposits and lending verticals, but there is still a lot of room for development to replace the traditional methods completely.


 

References:


The Future of Banking: The Growth of Technology.

www.spglobal.com/en/research-insights/articles/the-future-of-banking-the-growth-of-technology-and-its-impact-on-the-u-s-banking-sector

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