The fintech industry is one of the fastest-growing industries in the world. It is an industry that is wide and has so many components. For example, companies like Visa and Mastercard offer technology that powers withdrawals and payments. Technology like PayPal provides technology that enables funds transfers while blockchain technology helps to power transactions. In this article, we will look at the online lending industry and consider how it works.
What is Online Lending?
Online lending is one of the fastest-growing industries in fintech. The industry has been growing for the simple reason that technology has made it possible for companies to lend money directly to people. The industry works like this. A user will download an app, register, and give permissions to the company. The company can then use these permissions to do an in-depth analysis of the customer.
In addition to this data, the company uses data from credit bureaus to rank the type of customer and whether they are able to pay back the money. This process happens very fast using artificial intelligence and machine learning. Another method of online lending uses peer to peer mechanism. This is a process where people lend money to one another. Some of the fastest growing online lending companies are Tunaiku, Lending Club, Prosper, and Klarna among others.
Advantages of Online Lending
Online lending provides a win-win situation to the lender and the consumer. The process saves the borrower time because they don’t need to go to a local bank branch to get the money. It also makes it possible for credit unworthy people to get financing. This is because it does not rely on credit scores alone. It also depends on other factors such as the messaging you have done and how active you are on your phone. Third, the loans are disbursed faster than in traditional borrowing.
The lenders also benefit from online lending. First, small companies that were not in the industry a while back have been able to compete with the big banks. Second, the default rate in online lending is significantly lower because the companies are able to create a relationship with their customers. Third, the companies are able to save money on operational costs. This is because they don’t need to have local branches and hundreds of employees.
Cons of Online Lending
To a large extent, online lending has been advantageous to people and companies. However, there are also concerns that need to be addressed. For example, the amount of money that is lent to people is significantly lower. This is because these loans are usually unsecured. Second, there are concerns that the interest rates charged by these companies is so high. High interest rates make it impossible for people to depend on these loans.
The online lending industry is one of the fastest-growing in the world. It is an important industry that has changed lives of many people. It has helped make cash more accessible to people. However, the industry has also been criticized by the high interest rates and the access the apps receive when they are installed.