Fintech innovation creating new opportunities for small business lenders
Banks, credit unions and other traditional financial services firms have been facing a growing challenge in the small business lending sector. On one hand, the financial crises of the early 2000s forced these institutions to get more conservative and risk averse in the ways they lend. On the other, the large role small businesses play in the economy makes them a natural customer for financial services. As these factors come together, financial institutions are left having to process a fairly high volume of small business loans that represent a relatively low dollar amount and create a need for robust risk analysis.
This challenging environment has left many financial services firms moving away from small business lending or at least reducing their dependence on it. However, fintech innovation has established a framework for successful small business lending built around data analytics, simplifying risk management and streamlining loan processing.
The fintech alternative small business lending innovation and opportunities
Alternative lenders have been disrupting the small business lending space for a while now through a combination of data analytics and a willingness to take on risk that traditional firms have been largely unable to match. These industry disrupters took a bit of a step back in 2016, but Entrepreneur reported that the market dip that took place last year was a result of challenges for a few major players, not a sign of poor health in alternative lending. Instead, the news source explained that alternative lending should continue to rise as the online lenders that dominate the market broaden their solution portfolios.
“Alternative lenders using fintech solutions to gain momentum are increasingly partnering with traditional banks.”
In particular, Entrepreneur noted that alternative lenders using fintech solutions to gain momentum are increasingly partnering with traditional banks.
As the analytics and risk management systems underpinning alternative lending have matured, the technology has shown an ability to use a wider range of data in risk management and accelerate loan processing operations. These benefits can take away many of the pain points banks and credit unions have faced with small business lending, creating a more attractive market environment.
Embracing new small business alternative lending models
Banks and credit unions have a rare opportunity to move beyond a longstanding challenge in the industry. An Accion Insights report explained that the ability to access alternative data through digital sources can help lenders perform due diligence with greater speed and precision. Financial services firms that move beyond their traditional loan products and take advantage of these digital operational models can capitalize on the changing market dynamic to make a strong play in the small business lending sector.
GDS Link resides at the crossroads of these trends. Our analytics and risk management technologies offer the flexibility, ease of use and access to diverse data sources that have driven innovation in the alternative small lending space. Furthermore, our experience working in more traditional lending sectors allows us to understand what banks and credit unions need as they try to keep pace with a rapidly-changing market. Financial institutions have a new opportunity emerging in the small business lending sector, and we can help when it comes time to capitalize on the situation.