Technical FAQs
Few industries have been impacted by the proliferation of digital technology than the financial services sector. In fact, it’s one of the few markets where the average consumer can easily observe how much has changed in a short amount of time. Many people haven’t even set foot inside a bank for years, and millions pay all of their bills exclusively online. According to the US Federal Reserve, personal checks declined from 58.8 percent of non-cash payments in 2000 to just 8.3 percent in 2018. Both of these trends are driven by the increased convenience of FinTech applications, and the same changes have impacted the lending industry, as well.
What Is FinTech Lending?
Since the 2008 financial crisis, a new breed of lenders has become a disruptive force in the banking sector. Unburdened by the cumbersome infrastructure that makes large financial institutions slow to adapt to change, FinTech lenders utilize the latest technology to deliver a more responsive, personalized, and transparent lending experience to consumers. These innovative startups have combined easy-to-access digital platforms with sophisticated data analytics to streamline the lending process and deliver funds to borrowers much faster than could be accomplished with traditional loans.
Borrowers, it seems, have been quick to embrace this alternative source of lending. From 2013 to 2018, FinTech companies increased their share of the personal loan market from a mere five percent to thirty-eight percent. That rapid growth is a result of increased penetration into the digital marketplace and more flexible credit scoring that allows FinTech lenders to assess risk and approve loans more effectively.
In the early days of the industry, most FinTech lenders still relied upon traditional FICO credit scores when evaluating a borrower’s potential to repay loans. Over time, however, they have used a variety of alternative scoring mechanisms driven by data collection algorithms to create a more dynamic picture of a borrower’s credit status. Between 2007 and 2015, for instance, the correlation between FICO scores and the rating system used by one prominent peer-to-peer FinTech lender declined from 80 percent to just 35 percent.
The “Tech” Behind FinTech Lending
The loan adjustment algorithms working under the hood of FinTech lending applications are incredibly sophisticated, but they need good data for fast, accurate underwriting. While traditional lenders focus on predictable data points like income, debt payments, and assets, the digital nature of FinTech applications allows them to go much more granular. By gathering insights from other customer applications, internet searches, and even geolocation data, they can create a more complex profile of each customer, which then allows them to structure loans and other financial products that meet their specific needs while also protecting the lender to unnecessary risk.
This new approach to lending has helped FinTech applications to cut down the “time to yes” on credit decisions from the three to five weeks commonly seen from traditional banks to as little as five minutes. Even more critically, they can use digital funding to deliver cash to borrowers in less than 24 hours compared to the typical lender’s three month response time.
Improving “Time to Yes” on Credit Decisions
In addition to deploying more sophisticated risk adjustment algorithms to assess credit worthiness, there are some additional ways that FinTech lenders can continue to improve performance and efficiency.
Embrace Paperless Automation
The first and most obvious step they can take is by eliminating paper forms from the application process whenever possible. One of the reasons why banks and other financial services organizations move so slowly is due to the time it takes to fill out, fax, scan, and review physical documents. Not only are these forms inefficient, but they’re also prone to clerical errors when an applicant’s data needs to be transferred from the form into a database or application. By digitizing the application process wherever possible and automating data capture, FinTech lenders can significantly cut down on processing times and eliminate the human errors that so often create additional delays.
Increase Document Management Versatility
Shifting to an emphasis on digital documentation brings another complication along with it because there are a variety of file formats used throughout the financial industry. Some documents need to be in a specific format for compliance purposes, and if customers are submitting files through a FinTech lending platform, they could be using multiple different file types.
In order to streamline processing, FinTech applications need to be able to easily convert a wide range of file types into a few key formats that work best with their processing workflows. That means FinTech developers will need to integrate powerful document conversion tools into their software to ensure that they can avoid any troublesome incompatibility issues during loan processing.
Enhance Data Capture Capabilities
Although FinTech lenders are developing incredible algorithms capable of analyzing massive amounts of data to shorten credit application times, they are still dependent upon the information made available to them. That means developers need to implement data capture tools that can pull key data from a variety of sources and compile it into an easily searchable format.
Optical character recognition (OCR) engines can quickly extract information for any number of documents and images to create searchable files that FinTech software can quickly process as needed. For hand-printed documents scanned into digital format, intelligent character recognition (ICR) tools can be deployed just as effectively, allowing FinTech lenders to gather data from a wide variety of sources.
Expand FinTech Lending Capabilities with APIs and SDKs
One of the easiest ways for FinTech developers to quickly build lending-friendly features into their applications is to leverage API and SDK integrations. Rather than building new functionality from scratch, they can instead take advantage of existing, proven solutions to enhance their applications. This allows them to keep the focus on the core differentiators of their FinTech lending platform, allowing them to process and approve loans faster while minimizing potential risk.
Accusoft’s collection of API and SDK integrations provide powerful viewing and processing capabilities when it comes to FinTech workflows. Whether you need to convert multiple file types quickly, clean up document images, or perform OCR data capture, Accusoft has the solution to unlocking your FinTech lending application’s potential.