New developments, such as FinTech, have contributed to a variety of nuances in modern lending, including the need to focus more on implementing automation, streamlining data analysis, and improving the overall customer experience.
While there are many benefits for both lenders and customers from the use of these new, emerging technologies, traditional banks have been slow in responding to these modernized lending tactics. Here are three traits of modernized lending all lenders should be cognizant of today.
Alternative lending means more loans
Loans are now available to businesses and individuals who at one time could not have been approved for a loan going down a traditional lending avenue, like a bank loan.
Alternative loans do not have as strict of an approval process as traditional loans, but they often have better repayment schedules and are more flexible loans overall.
These loans are becoming more prevalent in the current economy because small business owners are able to get business loans much easier, for example. Alternative loans do not have as strict of an approval process as traditional loans, but they often have better repayment schedules and are more flexible overall.
It’s no surprise, then, that there are more of these loans being granted, as additional alternative lenders are popping up.
Having said that, these loans typically have higher interest rates than more traditional loans. Regardless, many business owners wouldn’t be able to actually start their businesses without alternative lenders, as BizFi points out.
Traditional lenders are slower to implement new technologies
As the American Bankers Association noted in its 2018 digital lending survey, traditional banks have been much slower to adapt to changing technologies. This means modern, tech-adopting lenders are a step ahead of many banks since they are more likely to implement, or at least test, new digital strategies.
The survey indicated that only 7 percent of traditional bank products are handled digitally from start to finish.
Does this mean that traditional banks have weaker fraud prevention systems than alternative lenders? Not necessarily – 27 percent of banks reported to ABA that managing fraud is one of the reasons they won’t switch to digital, as their systems in place have been working for them for a long time.
However, as McKinsey Analytics points out, developments in data analytics can quicken lenders’ decision-making processes, which can fight fraud. Additionally, faster data analysis means that solutions are created based on information from a variety of sources, and lenders can use artificial intelligence and machine learning to further combat financial fraud.
Without advanced analytics in place, lenders will miss out on a variety of added securities and streamlined processes.
Only 7 percent of traditional bank products are handled digitally from start to finish.
Customers have a better experience within the digital space
These days, customers want to fill out applications online. Whether for a job, college, or car financing, customers expect online access so they can manage it from anywhere and won’t have to print out a lot of paperwork.
A study from MIT indicates that digitally mature companies are 26 percent more profitable than companies that aren’t. And while banks implemented online banking a couple decades ago, and have released smartphone apps (since 98 percent of millennials now have a smartphone, according to Nielsen), is it enough to keep up with alternative lenders in the lending realm? Probably not, says the ABA. The organization advises banks start embracing digital lending.
Traditional banks may need assistance in implementing modernized analytics systems. GDS Link is able to provide services to these lenders to begin the process in ensuring the best risk assessments are in place and that loan candidates are being chosen based off of the most accurate information.