The rise of alternative lending has pretty much been synonymous with the rise of FinTech and its endless innovations. This is mainly because the FinTech sector is predominantly responsible for opening up digital ways in which alternative lending can be achieved. Within this week’s blog post, we take a look at how FinTech advances have made alternative lending what it is today as well as exploring the numerous benefits of it.
What is alternative lending?
Alternative lending is essentially a method of giving out loans that doesn’t involve traditional banks as well as traditional banking regulations. Over the years it has also been known as P2P (peer to peer) lending as well as marketplace lending which are both methods of digital banking systems set up by FinTech companies. Ultimately, alternative lending has the potential to become one of the new norms in the distant future as it is proving to be a much more flexible and easier way to take out loans and manage funds as opposed to traditional banking practices.
Main advantages of it
When it comes to alternative lending the main advantages of it is that it is fully flexible and has little to no barriers. This can be seen through the way loan applications are much easier to go through as well as it being quicker to get funding with the use of digital banking systems. Additionally, alternative lending has managed to create a more inclusive approach to banking as those from marginalised backgrounds who would face barriers from traditional banks would now have access to the same financial aid and opportunities. However there are some risks that come with this which include the possibility of opening up alternative loans with punitive terms, higher costs and lending to people who may be excluded but lack necessary screening to products they might not be able to afford.
Is it a threat to traditional banks?
Although the rise of FinTech has seen numerous innovations such as alternative lending and more people are accustomed to it, traditional banking can never be erased. With all the new advancements of digital payment systems traditional banks have now been forced to overcome and adapt to all the sudden changes and also offer mobile banking. Overall, it is fair to say that despite the rise in FinTech services and everything becoming more digitalised, traditional banking will always remain as a safety net.
What the future holds
From looking into the concept of alternative lending and exploring the possible benefits of it, it is clear that it has had such a positive impact on society as it has enabled so many people to achieve their financial goals as well as better managing their finances. Objectively, alternative lending is set to stay the new norm in the future whilst still coexisting with traditional banking institutions.