The world of loans is changing at a rapid pace thanks to fintech (financial technology) and technological tools that have increased loan process efficiency, lender competition, and resources available to both lenders and consumers. In 2014, more than 500 fintech startups received funding, and you can be sure that even more are emerging today to help both lenders and consumers in the loan process. As fintech transforms the way lenders and consumers approach the loan process, financial institutions will have to keep up with trends in order to stay ahead. Learn more about the way fintech is changing the mortgage, student loan, peer-to-peer loan, and auto loan industries.
Mortgages: eClosings on the rise
A 2014 study by the Consumer Financial Protection Bureau (CFPB) found that consumers were dissatisfied with the mortgage closing process, particularly the reviewing and signing of documents. The CFPB then studied 3,000 consumers and found that electronic closings — also known as eClosings — resulted in better consumer understanding of the mortgage closing process, a more efficient closing process, and greater feelings of consumer empowerment during the closing process. Although adoption of eClosings is currently low, we expect that lenders will increasingly rely on this technology in the near future.
All loans: The power of big data
Today, financial institutions have more access to consumer data than ever before; and as a result, lenders are able to do business smarter. Banks, lending companies, and mortgage groups mix geographic and demographic information to pinpoint where to establish a presence and what product/service packages to offer; once they’re in-market, they can use detailed data on a single individual to customize a loan offer. And it doesn’t stop there: once the lender extends the loan, they can track the borrower’s actions over time to further refine their processes moving forward.
Student loans: Competition increases
As student loans are on the rise (accounting for more than 35% of millenials’ total debt in 2014), these tech-savvy consumers are relying on technology to help them find the most competitive rates, trustworthy lender, and easy-to-use payment platform. Companies like Credible – almost like the Kayak or Travelocity of student loans — allow consumers to compare student loan offers in minutes and refinance to get a better offer. Online student loan assistance platforms like Student Loan Hero empower consumers to educate themselves in order to get the best rate and choose the smartest payment plan. Combined, these Internet resources have increased competition among financial institutions as consumers benefit from easy ways to compare lenders and refinance for better rates.
Personal & peer-to-peer loans: Support from a crowd
Although consumers once came to their bank for help financing that new boat, house renovation project, or family vacation, that’s no longer the guaranteed case. Crowdsourcing platforms like Kickstarter, Indiegogo, and Tilt make it simple for consumers to source money from their friends and family — as well as complete strangers. Global crowdfunding increased by over 150% from 2013 to 2014 and raised an estimated $34.4 billion in 2015, according to one study.
Auto loans: Taking it online
One recent study claims that only 17 out of 4,002 people prefer the current car-buying process; most list the test drive, deal structuring, paperwork, and servicing as pain points. As a result, consumers are flocking to the Internet to do as much pre-purchase research as they can and reduce the amount of time they have to spend shopping, negotiating, and purchasing a vehicle. Platforms like TrueCar make it easy for consumers to negotiate prices before they shop; companies like Carvana and CarsDirect make it possible for consumers to skip the in-person shopping and negotiating entirely, and instead choose and finance their new cars online.
Want to learn more about how technology is changing the loan industry? Get in touch with our team to stay ahead.