The world is at the dawn of the ‘fintech’ boom. Hundreds of these firms are now thriving in the U.S. and U.K. where the world’s financial hubs are located. In developing economies, however, the boom is just about to happen, and being knowledgeable about how these companies serve consumers would be a great advantage.
What sets fintech lenders apart from banks that also provide loans? While banks will remain to be dominant in most financial services, fintech firms are ready to take over digital lending for small and medium enterprises.
Simple and easy process
Most Filipino business owners are used to going back and forth to the physical branch of banks to apply for a loan. You bring hard copies of financial documents and fill out multiple forms in order to get your loan processed.
Plus, the bank process requires you to talk to different bank personnel because they follow a traditional process that has worked for them for many years. That’s just the way it is.
The fintech lender process, on the other hand, allows you to apply for a business loan in the comforts of your own home. Everything is done online through your desktop or smartphone. These firms have developed a technology that allows for a paperless process – handwritten forms are replaced with online ones, and financial documents are submitted as soft copies that are uploaded online.
Have you ever been rejected by a bank, or even avoiding applying in the first place, because you do not have all the financial documents that are required for applicants? It’s a common story we hear from business owners.
This is because banks follow a traditional credit policy that depends on traditional data or collateral. Clients are often asked for collateral to prove their creditworthiness, and you must have established a good credit history. Without this, it is impossible to get funds to grow your business.
In comparison, fintech firms assess a customer’s risk by using alternative data, like e-commerce sales, supply chain data, and social media profiles. Technology allows for an innovative underwriting process This also means that applicants do not need to provide collateral to get approved. The aim is to use this data to approve as many creditworthy borrowers as possible regardless of their collateral or credit history.
Speed of approval
Banks rely on manpower to carefully review and assess the financial documents they require from business owners. This takes weeks or months to complete which is understandable given the volume of applications they receive each day. The biggest downside of the lengthy process the business opportunity has already passed by the time they get approved and the dread of rejection which hangs over the business owner for such a long time.
For fintech firms, a week is already too long to approve a loan! It will usually take just 1 or 2 days after submitting all requirements online, then funds are disbursed directly to your bank account. Having found a way to automate the end-to-end process, fintech firms are reducing the time and effort that it takes for small business owners to get funds for your business.
Patricia Lynn Cañaveral is a magna cum laude graduate of the University of the Philippines School of Economics and is currently with First Circle, a Philippine-based financial technology company on a mission to expand business opportunity by empowering SMEs in growth markets with supply chain financing. She writes about finance, technology and innovation for entrepreneurs to promote financial literacy.