Everything You Need To Know About Fintech Lending

Imagine you live in the 1990s. You want to start a business, or just grow the one you have, and you need a loan to capitalize on existing opportunities.

What do you do? Back then, the only formal alternative you had was to head down to the bank and apply for a business loan.

The situation is much different now. The new emerging field of fintech lending offers much more flexibility to this process. Is it a viable alternative? Are there opportunities for fintech startups in this field? Are there any risks involved with fintech lending? Let’s take a deep dive into what fintech lending is.

What Is Fintech Lending?

Fintech lending is an umbrella term that defines modern systems to lend funds. It’s a replacement for traditional, but out of date and non-transparent, methods of lending. The applications of fintech lending are also wide, covering a myriad of fields, including mortgage lending, business loans, and other financial transactions.

But fintech lending doesn’t just incorporate financial institutions that loan money digitally. The field is much larger than that, and it includes companies with activities like:

  • Simplifying the lending process.
  • Offering transparency for lender accounts with different companies.
  • Document processing for loans.
  • Leveraging cryptocurrency for loans. 
  • Applying big data insights to lending processes.

And a ton of other applications.

What Are The Benefits Of Fintech Lending?

Fintech lending can help provide a lot of benefits to all types of financial institutions. Like most new tech solutions, the biggest benefit is a streamlining of processes. If financial institutions have access to an OBD (Open Banking Data) system, a SaaS solution that simplifies their lending process, or modern solutions to analyze the financial track record of their potential clients, they can improve their business.

But it goes even further than individual companies interacting better with their customers. Fintech lending provides structural improvements to an outdated, and potentially dangerous system. 

Think back to the mortgage crisis of 2008. Among the biggest causes for that bubble was a lack of transparency in financial transactions and lending. By bringing the lending sector into the 21st century, systemic problems like that one can be identified and corrected in time.

So to get back to our questions from the beginning, yes, fintech lending is a massive opportunity for startups, and it’s a viable alternative to traditional lending. However, some aspects of fintech lending can pose some risks. Transparency specifically can pose dangers related to privacy and security breaches.

But it’s nothing that would make fintech lending a risk in and of itself. Still, it’s important to keep in mind that in some situations, fintech lending solutions need to have security measures in place to mitigate potential risks.

For a better overview of how fintech lending works, and what it needs to thrive, we’ll now analyze popular fintech startups that improve the lending process.

The Mortgage Industry Actualized 

Real estate lending has had a tumultuous past, but fintech lending solutions can help improve the medium. A lot of fintech startups have cropped up in this scene, and they’re enhancing the industry constantly.

For example, there’s Better. This startup helps people that want to get a real estate loan do so without any hidden fees, and with complete transparency over the whole process. 1% savings when buying a new home might not be huge, but any homeowner knows the costs can add up, so Better provides a valuable service for people looking to buy a house.

Another example is Point. They help people finance their home by providing a new way to sell Home Equity, based on the future valuation of their home. Users can pay back at any time, and they get to live in their home when accepting the investment.

Other similar companies exist all over the US. They’re a bit less common in Europe, and most US-based fintech lending companies can’t expand their activity to Europe due to a drastic difference in lending regulations, but that’s an opportunity anyone can explore with their startup.

Applications All Across The Lending Industry

Companies that make lending more efficient exist all across the industry, especially when talking about B2B solutions. For example, companies like Open Lending offer big data solutions for fintech lending, which helps both financial institutions and customers make informed decisions.

Another application of the fintech lending industry is in business financing. Platforms like Aux Money allow peer-to-peer lending on a project basis, which incentivizes growth for SMBs, and makes lending more efficient and easier. The marketplace model in general has taken a foothold in the industry.

And of course, the elephant in the room: fully digital banks. Platforms like Revolut, Monzo, or Wise are best positioned to revolutionize the world of lending. They’ve already taken peer-to-peer transactions to a whole new level, and a lot of them are expanding into lending.

The open source model has also made an entrance into the world of finance lending. Deposit Solutions for example has created an open source solution for deposits, which is usable by any bank or financial institution.

The Future of Fintech Lending

As you’ve seen in this article, fintech lending has a myriad of possible applications. It’s difficult to predict how fintech lending might look in a few years, let alone in the long term. But much like the fintech sector in general, it’s bound to improve applications and innovate through automation, personalization, and improving the transparency of the industry.

If you’re interested in fintech lending, or if you want to hop into the market yourself, we recommend keeping an eye on the medium, especially on open source solutions and how they can be adapted to improve the outdated lending sector.

In Conclusion

Fintech lending is already revolutionizing an outdated financial model. It’s a powerful niche that can improve business processes, customer satisfaction, and transparency in the huge market of lending. 

But it’s a segment that’s still developing. We hope our article helped you better understand what fintech lending is, and how it’s innovating the financial sector. If you want to know more about fintech, make sure you subscribe to our newsletter to catch every article we write.