Decades ago, if you needed to get approved for a loan, you’d need to go to a local bank branch, negotiate with a loan officer, and give out all the details of your financial life. Fintech has started to change that.
Using vast amounts of available data, fintech lenders evaluate risk profiles, make credit assessments, and determine a borrower's lending eligibility. The focus on having a data-driven approach makes for faster processing and disbursements of loans, increased efficiency, and lower operating cost. This also opens fintech lenders to underserved segments of the population, like individuals with little credit history and small businesses, by providing easy access to capital. Infact, today, borrowers can now access loans with just a few clicks of a mouse.
But, fintech doesn’t mean borrowers always deal with a bank. In some situations, fintech also enables peer-to-peer lending by allowing consumers to obtain loans directly from other individuals and giving easier access to credit. These advancements will help shape the future of lending in a market that is expected to grow by 27.4% a year through 2029.
Advantages of fintech lending
Fintech lending provides access to credit-neglected segments of the lending market where individuals and businesses have been underserved due to limited credit history or cannot pass the formula-based lending requirements of traditional banks. This inclusivity fuels further economic growth and empowers communities that fall through the cracks of stringent credit requirements.
Speed and efficiency
One of the advantages of digitizing the lending process is that it lessens the burdens of processing and completing loan approvals and disbursements. Borrowers can receive funds quickly, and lenders benefit from faster investment returns.
Lower costs
On the operational side of the business, fintech lenders can operate with lower overhead costs compared to traditional financial institutions, which opens up the ability to reduce fees and offer competitive interest rates, which benefits both lenders and borrowers.
Regulatory frameworks
The rapid growth in fintech companies and the accessibility of their lending operations prompted regulatory authorities to start building guidelines that will protect lenders and consumers and ensure fair practices. The regulations can be complex, and compliance with these regulations can be a resource-intensive process for fintech companies.
Default rates and credit risk
While technology assistance in risk assessment tools can enhance accuracy, lenders will still face the threat of borrowers possibly defaulting and having payment delinquencies. Hence, fintech lenders must continue managing credit risk and maintaining a balanced portfolio of borrowers for the sustainability of their platforms.
Let’s look at some fintech companies that operate within the fintech lending space.
Meridianlink Inc. (MLNK)
MeridianLink, Inc. is a software platform provider for financial institutions and consumer reporting agencies. The company caters to financial institutions like credit unions, banks, specialty lending providers, and mortgage lenders. The company’s lending software provides a fully digital workflow for its customers, starting from initial account opening applications to its customers’ final extension of credit and even up to collections activity if necessary. MeridianLink’s software solutions include:
- POS (point of sale) systems
- Account opening software
- Consumer loan origination software (LOS)
- Mortgage LOS
- Business lending software
- Marketing automation software
- Data verification software
- Collection Software
- Analytics and business intelligence
The company’s lending software solutions include MeridianLink Portal, MeridianLink One, MeridianLink Opening, MeridianLink Mortgage, MeridianLink Consumer, MeridianLink Business, and MeridianLink Collect.
Pagaya Technologies (PGY)
Pagaya Technologies Ltd is an Israel-based company in the fintech industry that develops machine learning and AI technology (Artificial Intelligence) analytics and uses data science to enable an accurate customer credit assessment in real-time. Pagaya serves customers that are in the lending sector that connects to their AI Pagaya network. The network allows clients to discover and approve new customers when they meet their credit criteria. The company’s software solutions provide customers with a way to service their clients without undue risk. The company serves its clients all over the world.
Corecard Corporation (CCRD)
CoreCard Corporation is a company that provides technology solutions and processing services to the fintech and services market. The company designs, develops, and markets a suite of software solutions to different requirements:
- Program managers
- Accounts receivable businesses
- Financial institutions
- Retailers, card, and loan processors
Its CoreCard software allows customers to efficiently manage their card systems, increase customer retention, create greater market differentiation, and lower operating costs. Their CoreCard software platform and modules include:
- CoreCREDIT
- CoreENGINE
- CoreISSUE
- CoreFRAUD
- CoreCOLLECT
- CoreAPP
- CoreMONEY
- CoreACQUIRE
The company operates through affiliate companies in Romania, India, the U.A.E., Colombia, and Norcross, Georgia.
Final Thoughts
Fintech has revolutionized lending, providing borrowers with faster and more cost-effective financing options. By taking advantage of technology and data-driven solutions, fintech platforms introduced competition, enhanced financial inclusion and stimulated technological innovation in the financial industry. However, as in traditional banking, fintech will face regulatory challenges and should continuously refine its risk management practices to ensure sustainability and protect consumers and investors. As fintech lending continues to mature, it is crucial to be aware of regulations and potential changes in lending practices for investors to be ahead of its impact on their investments.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
