Fintech firms are offering tailored credit services quickly with high client interaction, using novel ways to analyse data and assess borrowers needs and repayment abilities.
By Abhinav Sinha, Co-Founder – Eko
NFBCs have typically extended loans to customers depending on the individual credit score. The credit score serves as a benchmark for evaluating or underwriting a person’s trustworthiness. Several criteria such as loan duration, debt levels, salary, financial history, and repayment ratio are examined to assess the debtor’s capacity to repay debt. However, this leaves many prospective borrowers with an actual ability to pay back a financed loan, rejected by conventional credit issue systems, because of the lack of standard data.
Since creditworthiness is determined through a human screening procedure, banks may take several days and weeks to inform potential customers of the outcome. The flaw is in the basis of the system that creates a loop. You need specific documents and a good credit score to borrow a loan, and you need to borrow a loan to increase your credit score. Therefore, if you do not have specific documents and a good credit score to start with, you may never get an opportunity to take a loan. So, how do folks who are new to credit get around this problem? The short answer to it is FinTech or financial technology.
Thriving fintech industry
Upwards of 1,000 FinTech start-ups have been founded in India in the last seven years, as per the Boston Consulting Group. Between 2015 and 2019, Gross investment in Indian FinTech lending firms rose by 25.49 per cent. In 2019, recorded loans furnished to tech start-ups reached $322 million, 3.18 times the median quarterly investment in this industry of $101 million.
Fintech firms are offering tailored credit services quickly with high client interaction, using novel ways to analyse data and assess borrowers needs and repayment abilities. They are digitising the transaction processing as well as the data. They’re tackling the credit needs of those who are neglected yet creditworthy.
Latest FinTech businesses have entered the lending scene in the recent decade, changing their fundamentals forever. They combine vast quantities of data into AI-based models to generate a “credit judgment” in under a few hours. Fresh creditors rapidly and readily gather financial information from a variety of data sources. This information aids them in gaining a clear sense of financial soundness and quick creditworthiness.
Credit analysis, which isn’t based on the standard data points provided by credit bureaus, is known as alternative credit scoring. It is a wide-ranging assessment methodology that benefits customers greatly, particularly those who are new to finance.
Conventional lenders just reject their credit applications because there is insufficient data to determine their trustworthiness. FinTech firms, on the other hand, utilise a different credit scoring process to evaluate a prospective customer’s digital traces to establish creditworthiness. This could include information from power, telecom, banking, residential and commercial data.
Offering customised loans
A herald of online lending companies has radically transformed the basis of the private loan underwriting procedure. While conventional lenders take-it-or-leave-it and one-size-fits-all kinds of products for loans, several FinTech companies have effectively exceeded conventional lending methods to deliver loans that are quicker, simpler, and more customised. Such systems use big data analytics to analyse a prospective debtor’s appetite and creditworthiness, speeding up the approval, disbursement and tracking procedures while maintaining a safe and trustworthy lending atmosphere.
Customisation is the key
FinTech firms are here to disrupt an age-old industry of lending. The world is moving from monolithic products and infrastructures to P2P and open-source architectures that are safe, reliable and customised as per the needs. Data democratisation and leveraging technology has put fintech firms at an advantage over traditional lenders. The dream of a $5T economy will need small entrepreneurs to rise and shine, and fintech will play a crucial role in offering custom lending products at scale to enable this transformation.