How Fintech is changing the credit marketplace landscape

Mar 18, 2018 Blog  FinTech , peer to peer lending

fintech

In a traditional credit market, there are three major players – the lender, the borrower and the regulator.  The role of the regulator is to ensure that the borrower and lender adhere to the rules.  One of these rules was stringent credit score measures which were put in place to make sure that consumers can only borrower what they can afford to pay.

These measures kept many people away from accessing the mainstream lending market, while they few that managed to get in, did so under very strict conditions.  Things have however changed over the past 5-7 years with the launch of several peer-to-peer lending platforms.  This vehicle has emerged as one of the preferred destinations for borrowers (both consumers and small and medium-sized businesses) looking to get loans at flexible rates.

Some of these platforms lend money to consumers without regarding their credit scores and allowing them to consolidate their debt repeatedly with new loans and higher rates.  Reports indicate that several consumers who did this ended up finding themselves held hostage in a cycle of debt which is very hard to get out of. Unfortunately this is one of the adverse effects of the advances in the Fintech market, as the barriers to entry are low and some players completely bypass the proper processes.

Peer-to-peer lending platforms connect investors who provides funds to borrowers via a single interface.  The interests of investors and borrowers are matched and then the access to funds is provided.  Investors have access to a list of loan requests that are accompanied by the credit profiles of borrowers and they can decided who to fund, depending on their requirements.  In this form of lending, unlike traditional lending, there is no deposit-taking and this aspect has forced some banks to re-think their approach to the market.  Some of them has taken a keen interest int he Fintech market and are investing millions to tray and reduce the risk linked to this.

Conclusion

Fintech has revolutionised the credit market through peer-to-peer lending.  There are several of these platforms that allow borrowers to access loans regardless of their credit score.  This aspect brings quite a few challenges.  Those who couldn’t access loans from mainstream lending institutions like banks before, now have access because of peer-to-peer lending platforms.

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