The financial technology (fintech) sector is in a precarious yet prospective position right now. The ongoing pandemic has fast-tracked the adoption of systems like cashless payments and electronic loan applications. More people feel less compelled to exchange paper cash or appear in person to apply for a loan, given the risk of spreading the infection and prolonging the crisis.
Canada has a growing fintech market, among the top ten alongside the U.S., The Netherlands, and Australia. According to an annual report by Smarter Loans, the country’s loan comparison service and directory, 71% of Canadians have shifted to online transactions over the past year. Most have also said they’ve been satisfied with the services provided.
However, the report also found that the average rating for online lending has dropped by 0.1 points from last year (though it’s 0.1 points higher than in 2019). There’s still more room for improvement in the areas of ease of application, access to information, and customer service, among other things.
Regardless, the rise of fintech will change the banking landscape not just in Canada, but everywhere else in the world. Its effects have reached the lending market in ways previously thought difficult, if not impossible. Here are some of the new initiatives:
Increased Risk Management
Fintech allows loans and other transactions to be processed more quickly than appearing in person, but it carries its fair share of risks. For instance, without face-to-face contact, lenders are at risk of damaging their capital due to defaulting borrowers. As the shift to online media continues, securing sensitive data will grow more crucial.
In light of these potential risks, industry experts highlight the need to mitigate—if not eliminate—any risks a financial institution may encounter. It must regularly document and update its processes to the rapidly-changing market conditions for enhanced transparency. It must also take new trends and initiatives into consideration, determining whether they would be suitable for adoption or not.
Software technology has also caught up in helping lenders assess a borrower’s risk more precisely. Tools like credit risk modeling, geopolitical risk analysis, and asset evaluation perform a lot of the heavy lifting. Lenders only need to input the correct data to receive a clearer picture of a borrower’s credit profile. From there, they can make more informed decisions.
As for cybersecurity, existing laws and solutions have provided enough protection from malicious attacks. Nevertheless, as online threats evolve, so must the methods to protect sensitive data.
Faster Approval Process
With many Canadians without a job due to the pandemic, the dogged search for alternative sources of income is reasonable. Some apply for remote work, while others start a side business. But most of the time, their income isn’t sufficient to pay off their piling dues. This hasn’t taken into account sudden expenses like sickness or calamity damage.
As such, lenders must expedite the process of approving loans to provide fast financial assistance. Given the urgency of having cash on hand, some lenders remain reachable even after hours or day-and-night. Fintech grants consumers the ability to file for a loan in several easy steps, all from their mobile devices. For more details, you can read more at icash.ca.
Faster, in this context, doesn’t necessarily mean instant. Lenders still have to practice due diligence in reviewing each application; thus, instant approval is impossible. With the technology available, processing loan applications can take a matter of minutes—and from a consumer’s fingertips.
A Tech-Savvy Market
Fintech’s prominent rise to success is attributable to the target market it serves. Contrary to popular belief, the borrower base is more age-diverse than one may think, with the youth and elderly almost equally represented.
The finding came from a 2020 study by credit reporting giant TransUnion, where it reviewed over 20 million non-mortgage products from Canada sold between 2017 and 2018. Despite millennials outnumbering Generation Z and other age groups by a slight margin, both groups have shown the same degree of interest in fintech-issued products.
The range of loans and other products offered through fintech is also more diverse. The prevailing perception is that fintech-issued loans are typically short-term ones with a 12-month duration. But the study revealed that banks had also been offering long-term loans to consumers through fintech.
It shows that the older generation isn’t as technologically-challenged as common notion suggests. Fintech lenders have to formulate a unique strategy for each age bracket, a move that the traditional model struggles to perform.
While the trend points to a phaseout of conventional banking, it doesn’t imply the banks will share the same fate. If anything, TransUnion advises, the emergence of fintech can be an opportunity to establish a healthy partnership between it and the banks. It allows a bank to operate as one without a brick-and-mortar bank, a long-term cost-saving measure.
Taking out loans often leaves a sense of dread in the consumer. The risk of not paying it off lingers, sometimes forcing the consumer to hesitate when the need for one arises. The current system puts the consumer between a rock and a hard place.
For fintech to truly succeed, it must combine technology with the human factor. A 2015 PwC study revealed a fintech system that offers financial advice through an advisor could be a game-changer. Having a set of financial tools like budget calculators and loan organizers can also yield the same benefit. Given the intricacies of lending, it’s reasonable to have someone knowledgeable to help.
The absence of a financial professional—or a lack thereof—has resulted in loans giving borrowers a difficult time. There’s no shortage of news reports of people trapped in their respective debt pits due to piling dues and interest rates, especially in this pandemic-induced status quo. Consumers deserve to be more informed about their options.
It’s worth noting that Canadians were once skeptical of fintech and the promises it brings. But with the pandemic forcing an accelerated adoption, many have since accepted it as the new normal for banking. Paper cash is unlikely to go away anytime soon, given that it’s still viable for short-term transactions. For loans and other financial products, however, the shift to fintech has started.