The future of lending will continue to depend on the development of technology. The success of this dependency comes from a large group of consumers that prefer virtual over offline lending. New technologies, FinTech, and tradition bank competition will continue defining the UK’s financial landscape.
The new FinTech market entrants showcase promising tech investments in Europe and have created an enormous impact in the lending industry. According to Atomico, FinTech is among the fastest-growing tech industries.
In 2018-19, UK financial products accounted for a strong lead with fifty per cent European FinTech capital investment. The popularity of FinTech platforms rises because of better financial options compared to rejections and overcharges from traditional banks.
Five things contribute to change for borrowers, namely, open banking, extensive data, digital signatures, digital communication, and artificial intelligence (AI).
Tech Changes in Lending
● Open Banking
Lender decisions have become dependent on open banking that provides verified customer expenses and incomes. The speed of granting money to virtual borrowers will continue to rely on it. It is one of the most significant changes in the lending industry that will expedite the process of borrowing money.
Financial services receive more innovation and competition through open banking. It was set up by the UK government’s Competition and Markets Authority. Open banking users that provide products and services require them to get regulated by the FCA or the Financial Conduct Authority.
In January 2019, there were 78 lenders, banks, software platforms, and building societies enrolled in the Open Banking Directory. The number continues to rise with the increase in lenders.
● Large Data
Decisions have become driven by structured, harnessed, and analysis of extensive data. Today’s generation of lenders can make instant fact-based decisions. Fostering great relationships and calling an underwriter has started becoming ancient methods, and the need for them has drastically diminished.
Today’s data-driven lenders have the capability of making accurate, consistent, and reliable decisions. Moreover, lender’s don’t require to focus on binary choices, even with deals of merits and personalized services.
The concept of lending based on income, valuation, defaults, etc., will not depend on a choice of yes or not, but mainly on the “large data” gathered through different sources. Therefore, borrowers seeking focus loans, or any other sort of borrowings must keep their credit score intact.
● Digital Signatures
Even after technological advancements in the past fifteen years, the UK mortgage customer still needs to post originals to lenders and make wet signatures. The adoption of digital signatures in the borrowing industry has been incrementally slow compared to other contracts.
It has initiated an enormous impact on the mortgage market that generates £250 billion every year. The key identifiers would include mobiles, iPads, desktop computers, laptops, and IP addresses.
The authenticity of the signature remains defined by how, when, and where the online signature was laid on the documents. However, the adoption of open banking, extensive data, digital communication, and AI will continue to rise with digital signatures.
● Digital Communication
There are endless technologies like email, WhatsApp, Sendbird, Zendesk, Messenger, and Facetime that allow human communication. Many lenders remain keen on building relations and providing personal services as opposed to face-to-face meetings.
Sitting beside the borrower at their home or office is no longer a necessity. Instead, distance servicing through cutting edge communication tools, portals, and mobile apps continue to drive this change.
Borrowers require flexibility and convenience in their busy schedule. The norm of granting large sums of money to borrowers without a face-to-face meeting will continuously become accepted. It will become possible through easily usable and sophisticated communication technology.
● AI
Artificial Intelligence (AI) became prevalent in financial services, especially FinTech long before the beginning of 2019. The new AI-driven systems depend on factors like algorithms, intelligent systems, etc.
Banks have become significant investors in developing solutions and developing cutting edge systems for market disruptions. AI and pattern recognition gave rise to machine learning, a computer science field.
Today, machine learning helps to create algorithms for computers with data learning capabilities. It helps to decipher accurate predictions depending on data patterns. Moreover, statistician interprets their results on linear regressions and other related techniques.
However, machine learning predictive models get generated using computer algorithms. Therefore, the results of these models would provide more accurate and faster results compared to statisticians. Money borrowing in the UK will completely change depending on open banking, extensive data, digital signatures, digital communication, and artificial intelligence (AI).
Besides this, the development of thin-file solutions by banks with the usage of technology helps in monitoring alternative income sources. These help to define the creditworthiness of the borrower based on factors like timely rent, utilities, and other payments.
PSD2 and open banking services also help to provide the best-tailored offers to the borrowers. The technologies access borrowers’ information safely and securely at the borrower’s request.
Simultaneously, these technologies also build useful customer services by mingling with banks. In recent years, AI and machine learning have become a vital part of the personal-finance market.
With the continuous evolution of technology, all types of mortgages, commercial and unsecured borrowing would continue to get incredibly influenced. Lenders would face the risk of either embracing it or getting left behind.
