Financial technology, abbreviated as fintech, is revolutionizing the way that consumers access credit and, throughout your lifetime, fintech companies could help you access the capital you need for anything from student loans to business loans to personal lines of credit. Here's a closer look at how fintech is changing the world of lending and an explanation on why the process is getting safer across the board.
Easy Application Processes
Most lenders that classify themselves as fintech companies pride themselves on offering a hassle-free application process. Rather than filling out lengthy forms, meeting with loan officers, writing business plans or jumping through other hoops, borrowers simply complete the application process online. Technology makes the task of uploading documents and filling out applications easier, but it also changes how lenders review credit applications.
Traditionally, lenders look at a borrower's credit history as well as their income, job stability and other popular indicators of creditworthiness. This creates a relatively narrow picture of the borrower that is based on criteria created in large part by the three credit bureaus and the Fair Isaac Corporation, the entity behind the FICO score. Simply, if you have good credit history and adequate means to repay the loan, you're likely to be approved, but if you're missing these elements, you face rejection or high interest rates.
Fintech companies have subverted this process. Rather than relying on traditional models, lenders can harness the power of the Internet to collect multiple data points on each prospective borrower. For example, if you were applying for a revolving line of credit for your business, a lender will look at your sales, rating on seller sites like eBay, online reviews, your social media presence and multiple other data points. If you were applying for a car loan, an investor loan, a personal line of credit or multiple other types of loans, the lender would use data points that support that type of loan. Using this information, fintech lenders create a picture of you that differs from, and arguably surpasses, the one created by your credit reports.
Competitive Interest Rates
It's critical to note that fintech lenders are not payday lenders. They do not offer predatory terms or high fees. In fact, their fees can be as low as 1 to 3% in many cases.
Fintech-focused lenders offer competitive rates, and they are able to do so because of the technology they have in place. As they create a picture of each borrower, fintech companies easily assess the likelihood that a borrower will repay a loan, and that makes it easier to match borrowers to underwriters who are willing to offer relatively low interest rates and fees. In fact, these competitive rates are saving many startups from crushing credit card debt by giving them access to relatively low-cost capital.
Of course, it's not just about speedy applications and fast funding. To protect your safety, fintech companies have cybersecurity at the heart of what they do. They collect information from consumers so they can determine whether or not to approve their loans. However, they do not share this information, and whatever they store is carefully encrypted. In addition to using https and maintaining valid security certificates, reputable lenders use strong protocol version and cipher suites to secure their own sites.
Additionally, when they access information from third-party sites such as PayPal, Amazon and others, these lenders use tokens. That essentially means that the information is communicated between the two parties, but it never leaves the original site.
Fintech companies don't just focus on one type of loan. Some lenders offer factoring loans, inventory loans and business lines of credit, while others offer short-term loans for consumers. Still others focus on other niches in the lending market such as student loans. In particular, fintech companies match students to local banks, credit unions and other financial institutions that offer student loans. By utilizing technology to connect multiple borrowers and lenders, they allow students to find the cheapest interest rates possible, and they also help facilitate consolidation loans.
Fintech companies are changing how lending works, and as they increase their stake in the world of lending, their rates drop, their terms become more attractive and their application processes become easier. Ultimately, whether you need cash now or in the future, as lending changes, you are likely to be able to benefit from taking out a loan from a fintech company.