How Technology Changed the Lending Industry

The Rise of Online Lending

The Shift in Lending

In recent years, online Lending Industry has seen unprecedented growth. Initially driven by the financial crisis and stringent banking regulations, the Lending Industry has flourished thanks to technological advancements. With banks becoming increasingly risk-averse and traditional loans becoming scarce, online lenders stepped in to meet the growing demand. Today, technology and innovation, rather than just regulatory changes, are the primary drivers of this sector’s expansion.

Growth Statistics

Although tracking detailed statistics can be challenging due to the prevalence of small, private online Lending Industry firms, recent data provides valuable insights. According to a report by the California Office of Business Oversight, thirteen of the largest online lenders issued $15.91 billion in U.S. loans in 2014—a 700% increase from 2010. In the first half of 2015 alone, these firms extended $12.47 billion in credit nationwide. Notably, consumer lending accounted for 82% of the loan volume, with small-business financing making up the remaining 18%.

The Origins of Online Lending

Why Online Lending Emerged

Online lending was born out of necessity. Following the 2008 financial crisis, U.S. banks significantly tightened their Lending Industry practices, making it difficult for both businesses and consumers to secure loans. This gap in the market led to the rise of online lenders, who began to cater to borrowers in need of capital, bypassing the limitations imposed on traditional banks.

How Online Lending Has Evolved

The Shift from Traditional Banking

Online Lending Industry is often viewed as the future of borrowing, not due to a lack of traditional bank loans, but because of the technological innovations that have transformed the loan process. Traditional bank loans were criticized for their outdated practices, which failed to meet the demands of a modern, fast-paced society. Online lenders have capitalized on this by offering instant gratification, quick responses, and minimal personal interaction, aligning with contemporary consumer expectations.

Technological Innovations

Online lenders have revolutionized the lending process through several key innovations:

• Convenience: Unlike traditional banks, online lenders allow borrowers to apply for loans using a smartphone or laptop, eliminating the need for multiple in-person visits. This shift reflects the broader trend toward online transactions, similar to how the Lending Industry transitioned from travel agents to online booking platforms.

• Speed: The efficiency of online lending is a significant advantage. While traditional bank loan applications could take weeks or months, online lenders often provide approval within hours and fund loans within 2-3 days. This rapid turnaround meets the demands of a fast-paced society.

• Streamlined Application: The online application process is significantly faster compared to traditional banks. On average, small business owners spend 25 hours completing paperwork at conventional banks, whereas online applications can be completed in as little as 30 minutes.

The Role of Technology in Underwriting

Advanced Underwriting Techniques

Technology has also transformed the underwriting process. Traditionally, banks relied heavily on personal credit scores (FICO scores) to determine loan eligibility. Online lenders, however, use a broader range of factors, including predictive modeling, data aggregation, and alternative indicators like background checks and online reviews.

For instance, whereas a bank might see a small business with a generic FICO score of 650, an online lender like OnDeck evaluates specific performance metrics of the business, such as efficiency compared to local peers. This advanced data analysis allows online lenders to make more informed decisions, including approving loans for individuals with lower credit scores.

Conclusion

The success of online lending can be attributed to technological advancements and a complete overhaul of traditional Lending Industry. The Lending Industry continues to expand rapidly, driven by its ability to provide faster, more efficient, and accessible financial solutions. As technology evolves, online lending is poised to become a dominant force in the lending landscape, potentially surpassing traditional banks as the preferred source for both business and personal loans.