While we, of course, have to thank the incredible creation of the internet for online lending, the technology behind the secure, simple and fast lending we have at our fingertips today has completely changed the way we borrow. From faster mortgage approval to the ability to compare online loans fast, the ability to click a button or two and get pre-approval for a loan that might’ve previously taken weeks is something too many of us take for granted.
With the near-instant nature of personal loans and the faster approvals and checks for the likes of car finance, phone contracts and more, borrowing has become a much quicker and more trustworthy process overall. Here, we’re taking a look at just how technology has created the fast-paced financial world online that we know today.
Where It All Began
The need for online lenders came about when banks were no longer providing the money that people needed to handle their financial troubles. As banks tightened up their lending allowances back in 2008, more and more people need access to funds quickly from alternative sources. Even after the financial crisis that year, banks still appeared to be relatively limited on who they were willing to lend money to regardless of whether it was a small personal loan or a full mortgage. For this reason, an alternative needed to be found.
Enter online lenders. This remote option for loan application gave consumers access to the funds they needed without having to go through any lengthy application processes as with a bank. While the likes of credit scores and financial state did still come into play in most cases, they still offered a more accessible finance form to the masses.
However, while the reduced availability of loans from banks did open up a door for online lenders, it isn’t the only reason that this alternative became so popular. In fact, the digitisation of lending was an inevitable outcome of the growth in financial technology. Many consider online banking to be the future of finance, with lending certainly being no exception and for that reason, the natural growth of online lending was a given.
The Innovation Of Online Lending
The innovation of online lending was a natural progression from the almost archaic nature of traditional banking. In a world where technology is taking over our everyday lives, from the way we travel to the way we work, being able to securely handle our money online was the natural next step. Consumers want instant gratification with their online activity, which we’ve clearly seen with online shopping. Millennials and Generation Z are the greatest adopters of next day and same-day delivery, with 72% of all UK shoppers already using Click and Collect from at least one store.
With lending, however, the ability to gain at least a provisional response to an application is something that online lenders have to provide in order to appease the personal loans market. Thankfully, the innovation of the financial industry has seen this become more and more common amongst lenders not only for small loans but in some cases, even for car finance and mortgages.
Innovation has completely changed the financial industry, introducing faster technologies with heightened security to the market. Some of the key innovations include:
– Data Management
The way that banks and financial institutions manage, store and gain access to our data are three key concerns for customers, and understandably so. Banks have been able to access our financial history for decades now, but with improved innovations in data management, lending is becoming a much more private and consumer-controlled process. On the opposite end of the scale, however, the rise in data-focused innovation has allowed lenders to access the data they need, with permission from the consumer, in order to offer better loan rates according to their financial state.
– Online Banking
As we all well know, banking was previously a primarily bricks-and-mortar based process. Any time a consumer wanted to withdraw money or organise their finances in any way, it would mean a trip to their local branch. For those who couldn’t access the banks easily, this meant reduced access to their money which, in turn, made lending and paying back the loan difficult.
With the improvements in online banking, however, these physical branches are becoming redundant. Consumers can do most things with the tap of a screen or the press of a button, from transferring funds and setting up direct debits, to applying for loans and cashing in cheques. Accessing our accounts and loan information from our mobiles, in particular, has meant that managing finances is much simpler and more trustworthy.
Additionally, the allure of online banking has drawn people towards online-only banking firms, in turn disrupting the traditional banking sector and putting high street banks under pressure to catch up to today’s technological demands.
– AI & Machine Learning
Banks, credit-card companies and lenders alike have been using AI and machine learning to not only improve their lending processes but as a security measure to ensure no fraudulent activity has taken place. In fact, this kind of security has become a core focus for FinTech startups, offering a more secure and fraud-free process for managing and handling our funds, ultimately protecting our money, log in details and more.
– Blockchain
While blockchain has been associated with the likes of Bitcoin and other cryptocurrencies, it’s impressive technology in and of itself. This technology offers improved security not only for online banking and money transfers but for securing smart contracts and other auditable data for lending. These technologies could be one of the most powerful innovations the financial industry has ever seen, but the disruptive nature has made people cautious. If it were to be widely adopted, however, it could completely transform lending and banking as we know it to something more secure, logistical and customer-friendly.
How FinTech Made Speed Possible
While FinTech had undoubtedly increased security, what about speed? After all, with most consumers demanding fast responses from companies of all kinds, the ability to offer loans and other credit options quickly is a must-do for any bank or lender hoping to capture a significant share of their market.
Well, the movement of loan applications to the online world alone has completely changed the way that both individuals and businesses can access funds. Studies suggest that small business owners, on average, would previously spend up to 25 hours on a single application for traditional banks, while an online lender could offer the same application and loan terms with just a 30-minute application. From fast online approval to the more limited number of details that could give lenders access to a wider credit report, FinTech has offered a faster answer to borrowers as to whether they’ve been approved and the terms that they will have agreed to in order to gain access to the money.
The fast-paced nature of the personal loans industry has come about due to a growing demand for quick access to cash. Financial decisions often need to be made quickly and for that reason, personal loan lenders are under pressure to offer quick decisions that still adhere to the FCA guidelines. With automated checks and machine learning in place, some applicants can receive an approval in less than a minute, with access to the money in anything from 1-3 days.
The industry still has some way to go in terms of speeding up the process but currently, it’s faster than it’s ever been before. It’s not just fast, either – it’s also more inclusive. With the processes in place at various lenders, most can access data on your financial state (with your permission) that determines not only your credit score but your current income and expenditure in order to determine whether you can realistically afford the loan you’ve applied for. This ensures a fairer and safer process that will ensure you will never be given a loan that a lender, within their knowledge, believes you could not afford to repay.
The Future Of Financial Technology
Despite how far the lending and financial technology industries have come, there’s still plenty of room for improvement and these improvements are already underway. The future of financial technology is a bright one, from improvements in customer service to better fraud detection, security, big data and even the growth of digital signatures.
– Customer service
If there was ever a focus that every single industry should have, customer service would be it. Customers are the proverbial fuel to the business’s fire, offering them income, interaction and in some cases, even the publicity needed to gain further customers in the future. The finance and lending world is no exception. In fact, it’s suggested that customer service should be the core focus of the finance industry, second only to security. Customers are putting their trust into a bank or brand with their finance and while, in the past, a good customer service team was enough to appease their questions and concerns, this has changed considerably.
Chatbots, in particular, have become a normal finding in the finance industry, answering questions relating to generic information, helping to give quick access to answers when they’re needed. While there are concerns that this is taking away the human touch to the finance industry, chatbots and AI systems can offer simple answers, with the ability to forward questions on to trained staff members when the query is a little more complicated.
– Fraud Detection
While there are already systems in place to detect and handle fraudulent activity, the potential for this to improve in the future is huge. AI systems can already detect fraudulent activity within a few seconds, but what if this could be reduced to nanoseconds? Money can be transferred in a second or two and so the fastest fraud detection still might not be quite enough. Instant detection and management of any fraud can help to improve security on accounts, but these processes can also help to track through the history of a victim to detect when the fraudulent activity began.
– Big Data And Automation
When Big Data and Automation are paired together, the possibilities are endless. Every applicant that goes through an online lender will face a series of decisions that are being made behind the scenes. From whether they’ll accept the credit score, to whether they’ll overlook a missed payment or their current income, these decisions are arguably binary. With the implementation of better machine learning automation and the Big Data landscape, lenders can make better-informed decisions that, while automated, still offer a more personalised experience from the lender in question.
Despite this, however, it will eradicate the ability to get a loan solely on merit. Relationship building with a lender or bank will no longer be possible and in most cases, the decision will be made entirely based on automated answers to equally as automated questions. It’ll speed up the process, but dehumanise it to an extent.
– Digital Signatures
If you’ve had to sign for a mortgage lately, did you have to do it physically, or were you able to do it online? Regardless of your answer, chances are you’ll be surprised to know that while digital signatures are a possibility, there are a shocking number of banks and mortgage lenders that still require a physical signature from their applicants and often one that requires visiting a branch to provide.
Digital signing technology is by no means a new thing, but the financial industry has been slow on the uptake for the most part. Online signing makes the identification and verification of the location and applicant arguably simpler, with the likes of e-Documents also available for passports as a form of ID. Lenders can identify IP addresses, the device being used and more, all to determine whether a signature was legitimate and so it’s surprising to see how slow the adoption of the technology has been. Could this change in the future? Only time will tell.
Financial technology has changed the world of lending for good. Offering faster applications and quick decisions on most loans, borrowers can access the funds they need without having to wait weeks to even hear back from their bank. Whether you’re in need of a short term loan, a mortgage or even credit for a car, you can thank innovative technology for the ease and speed at which these are accessible today.
