The Importance of Financial Technology and Systems for Lenders, Explained

You may be a successful lender today, but are you ready for tomorrow?

The simple truth is that technology is constantly changing and advancing. And as financial technology and systems evolve, it is important for lenders to change and adapt so they can remain successful in the market.

Wondering how these financial technologies and systems will affect your own business? Keep reading to discover the answer!

Expanding Influence of Financial Technology

Obviously, financial technology has been around for a long time. So it's only fair if you are asking yourself why this technology is suddenly a concern for your lending business.

The short answer is that the influence of financial technology is expanding and evolving in a powerful way. This includes the expansion of the companies pushing this technology forward. But it also includes the technology itself becoming more prevalent in the daily lives of users and businesses.

Just think about how much analytics have affected things like sales and marketing. When you look at the rich user data that the right technology can provide, then the data available to lenders via credit checks simply may not be enough.

Lenders vs Tech Platforms

As we noted above, lenders primarily rely on credit checks to discover information about prospective borrowers. And while credit is usually a good indicator of a person's general finances, it usually doesn't provide enough info about the borrower's background and more specific financial details.

However, the companies building technology platforms design these platforms with a purpose in mind. From the ground up, these platforms exist to gather information about customers so the company can improve everything from their sales and marketing to their product selection.

Such technology is how Amazon can make surprisingly solid recommendations to you based on your purchasing history. Simply put, most lenders can't compete with major tech platforms when it comes to gathering data. And this matters now more than ever because many of these technology companies are now serving as direct competition for your customers.

Technology and the Rise of Alternative Lenders

Credit checks are an imperfect system for lenders for many reasons. Sometimes the information on customers is out of date. Other times, their credit report may have false information that the customer has not disputed because they are not even aware of it. 

And, of course, there are quirks of the credit system that continuously take people by surprise. Many borrowers have been surprised to see their credit score actually take a dip after they pay a credit card off, making them feel like they were punished for doing the right thing.

Fueled by technology platforms and systems, many companies have now begun offering alternative lending services. While these services may have different methodologies, they all share something in common: they use means other than (or in addition to) a borrower's credit before lending any money.

Right now, alternative lending services are (relatively) rare. But as these businesses gain steam in the coming years, your own lending business may need to evolve before you go the way of the dinosaurs.

The Difficulties of Regulation

On the face of it, the solution for your own business may seem simple enough. By adopting some of this evolving financial technology and systems into your company practices, you can be as competitive as needed to keep up with this new breed of private lenders.

However, one big hurdle you will face comes in the form of regulatory challenges. Think of it this way: collecting and using data in this way often involves buying and selling user data. This means you may run into privacy laws and regulations that could land your business in trouble.

And even when users provide their information willingly (for things like email and SMS campaigns), you must be careful in how you ask for data. Similarly, you must give users easy and transparent ways to opt out. Because of these concerns, we recommend you consult with a good CRA before earnestly adopting financial technology, systems, and practices into your own business.

Technology and Ripples in the Financial Ecosystem

Another reason you need a good CRA on your side is one we have touched on multiple times so far. Basically, the intersection of financial technology, lending, and borrowing continues to grow and evolve from day to day.

Today's market of alternative lenders and data-driven tech platforms could not have been fully predicted five years ago. And five years from now, the future of that intersection will likely look nothing like what we can predict in the here and now.

This constant evolution presents obvious challenges to any modern lender wanting to evolve their own business. But the solution to that challenge is embracing the truth in an old cliche: the only constant is change.

The privacy laws and regulations surrounding the gathering and implementing of user data are guaranteed to change. And the exact technology we rely on and platforms that we use are guaranteed to change as well.

But every single change represents new opportunities for your business to take advantage of. And so long as you are comfortable with changing your business model and finding dynamic new uses for technology and data, then you can transform your business and leave your competition far, far behind you.

Your Next Move

Now you know the truth: financial technology and systems mixing with lending can either be a problem for your business or a solution. And if you are ready to embrace this solution, then you need the right company to help you take full advantage of these opportunities.

Here at MicroBilt, we specialize in helping financial companies overcome obstacles, implement changes, and expand their brand. To see what we can do for your business, just contact us today!