Jan 02, 2019 Philip Burgess
The rise of the internet has caused considerable disruption to almost every industry, though the world of finance has seen the most significant changes. In the past, consumers heavily relied on the expertise of financial institutions, but the digital revolution has ushered in an era of personal banking based on a self-service model. Now that consumers have access to powerful economic management tools, they're better equipped to understand the impact of their decisions and maintain their own financial well-being. For example, our 2013 study on short-term loans found that the average borrower takes around 5 renewals to pay off a loan, with more than half of all borrowers paying it back within 3 renewals or less. Not only does this point to a more fiscally responsible consumer pool, but it also demonstrates an increase in borrower confidence. So how has everything changed so rapidly?
"The average borrower takes around 5 renewals to pay off a loan, with more than half of all borrowers paying it back within 3 renewals or less."
The Fintech uprising
Technology has been the driving force behind the trend toward personalized banking activities, as it has enabled a variety of online marketplaces and new service models to flourish. A 2018 study by the Congressional Research Service (CRS) provides a thorough overview of how marketplace lending has created new opportunities for consumers and small businesses, owed in part to the rising popularity of Fintech, or "innovative financial technology."
Marketplace lending refers to the nonbank lending industry, which utilizes Fintech to distribute loans via online platforms, though incumbent lenders have grown increasingly interested in joining the fray. Often called peer-to-peer lending, this business model offers consumers and small businesses a quick and easy way to obtain loans through nontraditional economic channels. While it can be difficult to land on a precise definition for marketplace lending, the CRS points to these defining characteristics:
- Loans are distributed to individuals and small businesses
- Operations are conducted online without physical branches
- Underwriting activities are automated through algorithms and machine learning
- Funding is obtained through selling loans to investors or issuing equity
This service model is entirely dependent on Fintech platforms to operate, as they provide a direct line to borrowers that bypasses conventional lending processes. Most online marketplace loans are small and have short repayment terms, though this tends to vary depending on the specific financial need a platform is servicing. For example, online mortgage lenders offer conventional fixed-rate loans with terms comparable to most banks and traditional providers. One of the key benefits of Fintech is that most platforms concentrate on one or two specific offerings, which allows borrowers to work with specialized lenders.
Popular Fintech lending platforms
While there are countless Fintech lenders to choose from, borrowers can narrow their search based on the particular type of loan they're looking for. There are Fintech lenders that specialize in mortgages, business loans, personal loans and even loans for large retail purchases. But Fintech isn't only a consumer-focused solution, it also helps lenders, creditors and business make smarter decisions. To get an idea for what financial technology can do, check out these popular platforms:
- PRBC Credit Builder: This consumer lending platform helps individuals with no traditional credit scores by providing a dynamic online marketplace to connect with potential lenders. As a true marketplace lending tool, it allows businesses to browse customer data with a focus on creditworthiness, which is dependent on the supplied borrower information and alternative credit scoring criteria.
- PRBC iPredict: This integrated scoring product allows short-term lenders to assess the credit risks of their consumers by giving them access to large stores of data from credit bureau databases. This platform provides lenders and creditors enhanced predictive capabilities to ensure they fully understand the potential risk of a loan applicant, leading to fewer defaults and more efficient business processes.
These are just a few examples of how marketplace lenders can help consumers and small businesses achieve their financial goals. But Fintech platforms facilitate more than just lending, they also give users access to advanced data analysis tools that increase the likelihood of a positive monetary outcome.
The value of non-lending Fintech platforms
Microbilt specializes in Fintech platforms that enable users to make informed financial decisions and manage the associated risks. For over 35 years, we've empowered consumers, small businesses and lenders by offering innovative technology solutions to the toughest economic challenges. Our alternative credit reporting tools provide cost-efficient consumer credit data that can ensure the best loan decisions are being made, while our decision support products help to manage the process from origination to repayment.