In the past years, society reaped the benefits of rapid technological advancements. This statement goes for a variety of industries, like healthcare, education, and finance. For finance, in particular, we’ve seen plenty of significant developments. The rise of online banking, digital wallets, and even increased security has been the result of the evolution of technology. Most notably, technology has also shaped the world of lending. The question is: how? First, we’ll tackle exactly the main technological advancements in today’s lending landscape.
What Are the Technological Advancements in the Lending Landscape?
With many industries incorporating technology into their daily operations, it only makes sense for the lending industry to follow suit. These developments manifested in various forms – online lending platforms, blockchain technology, and the recently-booming trend of artificial intelligence. Here’s what you should know about these game-changers in the world of lending:
Online Lending Platforms
Many customers prefer the digital experience, and this has been shown in the rise of digital finance applications. Online lending platforms are no exception, and lenders and borrowers are here for it.
What’s not to love about an online lending platform when it can just be so convenient, with everything at reach within your fingertips? Even better, online lending platforms have paved the way for P2P (peer-to-peer lending). This type of lending creates a direct relationship between the borrower and the lender. As a result, lenders can offer lower interest rates to borrowers. This isn’t the case with traditional lending when interest rates can occasionally skyrocket.
We know you’ve been hearing a lot about blockchain. After all, it’s a major tech buzzword for a reason – because it shows great promise. Blockchain technology is not just all about cryptocurrencies and NFTs, it has applications in the lending industry too. The core principle of blockchain lies in decentralization. In the case of the finance industry, this eliminates the need for intermediaries, such as banks. And when you say goodbye to these intermediaries in the lending industry, the lending process is further streamlined.
One of the latest groundbreaking technologies, artificial intelligence, can be used in the lending industry. If you’ve been out of the loop, you might be familiar with a popular AI invention that has been changing the game, ChatGPT. However, there’s more to AI than these chatbots. Artificial intelligence is a type of innovation wherein a machine mimics human intelligence but processes data at faster speeds. While the application of AI is still being explored, we’re already seeing it make huge waves in the lending sector.
With its power to analyze large data sets quickly, artificial intelligence can evaluate how trustworthy a borrower can be. Because of this, lending processes can be done in seconds – a whole win for the lending industry because of faster processing times and a more efficient lending process.
How Does Technology Benefit the Lending Landscape?
Now that we’ve tackled the major technological advancements, it begs the question: how exactly does it benefit the lending landscape? Read on to find out more about its benefits.
Assessment of Credit
The assessment of consumer credit scores has always been a critical component of the lending process. Technological evolution in the lending landscape allowed the more efficient assessment of credit scores, with innovations like artificial intelligence and machine learning taking the charge in assessing credit scores.
Personalized Loan Offers
Another benefit that technology provides to the lending industry is the personalization of loan offers. With its ability to leverage the power of Big Data, technology can customize loan offers based on a borrower’s history. This increases the chances of a
What Are the Challenges of Technological Developments in the Lending Landscape?
Technology isn’t all rainbows and sunshine – it has its fair share of challenges, too. Let’s get to know some of the biggest roadblocks in the evolution of technology in the lending industry.
With everything going digital, the threat of cybersecurity is too significant to ignore. Since the inception of the Internet, crimes were no longer limited to the physical world, they moved to the digital one, too. And the threats these criminals posed? Not so great. You have cybercriminals attempting to steal your confidential data. One can only imagine the issues of cybersecurity in the lending industry.
Unfortunately, these crimes are not just an imagination. It’s the tragic reality that’s been going on for years now. In the finance industry, instances of identity fraud and theft of financial assets are common. We can see how this works in the lending industry. A criminal could masquerade as a legitimate borrower, provided that they have the access to their accounts. This is why lending platforms must take additional precautionary measures such as KYC (know your client) and 2FA (two-factor authentication) to prevent the incidence of cybersecurity threats.
While accessibility is a major advantage of technology in the lending industry, it can also be a major disadvantage – especially for the tech-illiterate. Others might not have the necessary devices to gain access to their accounts. This isn’t just a problem of the lending industry – it’s an effect of the widespread adoption of technology. However, as new technologies are being innovated, we hope to see a future where the barriers to accessibility are destroyed.
For many, regulations can be the cause of throbbing headaches. Understandable. In an ever-changing world, the regulations are ever-changing, too. It gets difficult to keep up with the times, which is precisely why regulatory compliance is a major hurdle that a lot of industries will have to jump over. In the lending landscape, lending platforms must be aware of data privacy and anti-money laundering laws, which can vary across countries. This, in particular, makes regulatory compliance a challenge. For lending platforms that operate on a global scale, they’ll have to be certain that they aren’t messing around with the laws in any country they operate in.
Technology is a double-edged sword. On one edge, a lot of the benefits that we reap today in the lending industry are all thanks to technological advancements. And on the other edge, technology still has its share of limitations and challenges. But, technology has proved that time and time again, these limitations and challenges can always be addressed. Without a doubt, technology is helpful more than it is detrimental to the lending industry. And with innovations on the horizon, we can only expect this to continue.