The fintech revolution has changed the nature of all major types of financial services. Lending is no exception. In recent years, many small business owners and financial services customers have found that fintech lenders are often more willing to approve loan requests than traditional lenders.
This isn’t because fintech lenders are engaging in predatory behavior. On the contrary, fintech companies use technological advances to leverage data and information that may not be available to other lenders when evaluating whether someone applying for a loan qualifies for approval.
The benefits that fintech lenders offer to both their customers and the economy in general are becoming clear as the fintech revolution continues. They include:
Fintech lenders don’t merely approve loan applications that other lenders wouldn’t. In many cases, they also reach their decisions more quickly than other lenders.
This is due to the way in which they use innovative tools to access and assess valuable data. For example, fintech lending companies may be more likely to use artificial intelligence when analyzing data, which makes the process more efficient than manual underwriting alone.
That’s good news for small business owners. If they don’t qualify for a loan, at least they’ll know sooner rather than later. More importantly, if they do qualify, they’ll have access to the funds sooner than they otherwise might, allowing them to grow their businesses more quickly. Theoretically, this generates jobs and revenue that contribute to their local economies.
That’s a crucial point. Many experts have noted that fintech companies of all types (not just lending companies) have played a major role in helping struggling economies grow and thrive throughout the world. As fintech lending becomes more widespread and commonplace, it’s likely this trend will continue.
It’s an unfortunate truth that human bias affects the decisions traditional lending companies make. Although decision-makers may not be conscious of it, an applicant’s race, gender, or other personal characteristics can influence whether the lender chooses to approve or deny a loan application.
That’s less likely when applicants work through fintech lenders. This highlights the way in which the use of new technology improves the overall lending process at these companies.
Fintech companies’ innovative means of reviewing applicant data typically doesn’t notice factors that might bias a human lender against an applicant. As a result, otherwise qualified applicants who may have nevertheless struggled to secure loans in the past now have a better chance.
Poor credit history isn’t the only factor that could disqualify someone applying for a loan. Sometimes, a person simply has limited credit history, or they come from a country where the credit system is significantly different from the system in the country to which they’ve moved.
In these circumstances, it’s not uncommon for people who meet the criteria for loans to be met with rejection when they apply. Lenders simply don’t know how to properly evaluate their credit history.
This is yet another problem that fintech is addressing. When applicants’ credit histories don’t provide sufficient insight into whether they qualify for a loan, fintech companies use other data to make a determination.
That’s particularly beneficial to people who are immigrants. Many people who move to other countries with the goal of starting their own businesses unfortunately struggle to do so because their credit histories make it difficult for them to secure loans. Thanks to fintech, that may be less of a barrier in the near future.
The tools fintech lenders use to evaluate applicant data don’t just benefit the applicants themselves. They can also protect lenders, resulting in stable revenue with less risk.
Specifically, the data fintech lenders evaluate when someone applies for a loan can help them more effectively verify an applicant’s identity. This reduces the chances of an applicant successfully defrauding a lender.
This may seem like a minor point when compared to those above. However, it’s still worth including because it highlights the value of fintech in general.
Applying for a loan used to be a lengthy process. That doesn’t need to be the case. Fintech lenders are now more likely to allow people to submit applications online.
As is the case with many other fintech services, this added convenience makes a once cumbersome process much more convenient, saving time for everyone involved. That’s more time on trip or in years can use to focus on actually building their businesses.
All that said, it’s also worth noting that this is just the beginning. Fintech lending is still a fairly new service. As it expands, its benefits will only become even more apparent.