Risks And Rewards Of Fin-Tech For Credit Invisibles
There is no doubt that financial technology in financial services has developed a money lending process especially when it comes to online money lending. However, just as a coin has two faces Fin-Tech too has its own share of criticism and the most significant one of all is that it is thought to disrupt the operation of the banking industry.
Comparing the services and scope of Fin-tech and banks and parsing the risk and rewards of Fin-tech it is supposed to pose a threat among Credit Invisibles. As it is in everything, there are risks as well as rewards in lending money as well.
Moreover, technology has its own nature to lure the firms that wish to gain an advantage in determining risk and reward. In general, with Ai and Machine learning it is supposed to help these firms to uncover and explore the untapped opportunities.
This process is further facilitated by Fin-Tech especially to the sub-prime money lending market with technology as a useful aide.
Banks and Fin-Tech
It has been widely reported by several different publications including The Wall Street Journal that Fin-Techs are perfectly poised. It also states that it is even gaining a strong foothold in the subprime credit market which is involved primarily in extending loans to individuals and even businesses that have low credit scores.
Ideally, the traditional banks can also play the Fin-Tech game as well just like the non-bank money lenders such as https://www.libertylending.com. The ascent of this period has come especially from the startups. These startups are considered as the actors who are not necessarily inside the inner circle of the financial services segment but do take a significant part and play a more prominent role within the ecosystem.
Ideally, the experts think that there are three core trends that have led to this emergency such as:
• Technology: The financial services were traditionally considered as an industry that needed fixed assets such as branches to scale up. This acted as a strong and hard to overcome the barrier to the entry of the newcomers.
With technological advancements now, it allows upstarts to successfully run the complex operations virtually by simply operating on a more advanced and pure technological infrastructure. This has also helped them to amass a large number of customers without actually having to follow any type of live customer-facing function.
• Customers: Right after the aftermath of the Financial Crisis of 2008 along with several other scandals, the banking services faced more demands from their existing customers. With the use of technology in financial services the consumers are now empowered to scrutinize their service providers more precisely and heavily.
They are now demanding a cleaner and better customer service which is what these upstarts are harnessing and providing exactly as wanted. The system has become more efficient and has become free from the shackles of the legacy technology.
• Regulation: There is increased regulatory oversight imposed on banks after 2008. This is however estimated to cost heavily all the six largest US institutions to the tune of approximately $70 billion per year. Apart from complying with the regulations, there are several restrictions on lending imposed.
Both of these factors have raised the cost of borrowing significantly for consumers. This has diminished the ability of the banks offer loans. This has however paved the path of the startups to step in as a compelling alternative source of lending. This is because they are not de facto banks and therefore not regulated.
At this point, it may suggest that the Fin-tech landscape is helping the startups to the technology to disrupt the services of the incumbent banks. However, this does not mean it is the end of the banks, at least for the time being. They are still widely used and are the profitable cash-rich business.
Efforts of Fin-Tech
Under the present scenario, all they have to do is to respond to this specific technology in a better way and will have to give up their suboptimal approach and use. Fin-tech, shortened from financial technology, is supposed to be a modern technological movement.
However, there is no reason to believe that the use of technology in financial services to assist in their operation is by no means a recent phenomenon. If you think a bit deeper you will see that technology was used by the financial services even decades back when it introduced the following:
• Credit cards in the 1950s
• Internet banking in the 1990s and
• Contactless payments since the turn of the millennium.
Even then, it is by the virtue of the service and ability of Fin-Tech that it has made a significant impression in public conscience and it has really taken off in the past three years. It has a very low cost of operating as compared with the traditional financial services organizations. It also provides a lot of scope for the tech upstarts.
Since banks are pulling back from loaning the subprime population considering that there is enough risk of not getting paid back, the upstarts have made the maximum benefit out of this situations and concept.
Parsing the opportunity and risks
With all the prospects, there are a few concerns for using technology in financial service even though the banks have backed up a bit. It is required to know the right areas to pick and choose so that opportunities that lie galore are not missed.
• It is required to know the actual financial behavior with a deeper dive into the physiognomies that are specific and cut across particular consumer profiles.
• Technology helps the lenders to look into the “on the edge” group more precisely to find more fertile ground for financing and reaping the benefits.
• It will also help them to be wary about the “second chances” group that rebound from serious setbacks even though they may be relatively high earners.
Therefore, it pays to consider the risk and reward beyond the set and most common parameter of a three-digit credit score. With Fin-tech services in hand, you will find all the risk factors covered and better ways of due diligence.
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including money saving, Budgeting, business debt consolidation, business and start-ups.