As traditional lending methods give way to innovative approaches backed by cutting-edge technologies, loan options and financing options have broadened for both banks and borrowers – especially with the emergence of alternative lending institutions and non-banks.
In today’s digital world, people everywhere enjoy increased access to products, services, and information online – and financial institutions and investors have taken notice. These new players are transforming the lending industry and creating more equitable – and more personalized – experiences for both consumers and businesses using alternative lending data gleaned from AI-backed technology.
What is Alternative Lending?
For businesses and borrowers seeking more accessible means of borrowing money, alternative lending is a game-changing development.
In the past, traditional bank loans often came with unfavorable terms – higher interest rates, for example, and antiquated decision-making processes. Additionally, because of location, education, and/or economic standing, many would-be borrowers didn’t have access to high-quality lenders. Some of them lacked the qualifying criteria to borrow at all. These obstacles created missed opportunities for lenders.
Today, borrowers have many more options thanks to alternative lending sources: non-banks. These loans diverge from conventional loans from traditional lenders, providing options for borrowers with diverse financial needs. Most alternative lenders conduct their business entirely online, which means almost anyone, anywhere can access information and apply. And in many cases, speed is the name of the game, with traditional lenders taking weeks and sometimes months to approve.
A small business financing loan with custom financing options (or one that addresses the challenges posed by higher interest rates) offers more in the way of not just flexibility, but personalization, too – that highly sought-after experience that keeps customers coming back.
What Are Non-Banks?
The latest major disruption in the financial services landscape, non-banks are alternative lenders that challenge long standing lending norms. They’ve reshaped the landscape for borrowers and for traditional lending companies (like banks and credit unions) – namely by increasing access to funding for borrowers who would otherwise be shut out.
As the name implies, non-banks are not banks. They don’t have banking licenses, and they don’t operate under any banking regulatory agency. Most often they’re institutional investors – organizations like hedge funds and insurance companies.
Non-banks leverage innovative technologies like machine learning and artificial intelligence to expand their offerings beyond traditional products like mortgages and small business loans. With increased access to borrowers’ personal financial data, they can make quick decisions about qualifying applicants and deliver funds in a much more timely manner. All this enables alternative lenders to capitalize on underserved borrowers seeking flexible funding options.
Trends in the Lending Industry
Personalization
The era of one-size-fits-all banking and borrowing is over. Today’s consumers expect personalized experiences everywhere, and financial institutions are no exception — especially in the lending industry. Custom financing options, for instance, are one of the ways alternative lenders and non-banks are personalizing the lending experience and making funds more accessible for all.
Artificial Intelligence
There’s no technology sector that AI hasn’t touched in the past couple of years. Algorithms and machine learning take large datasets and comb them to help financial institutions make smarter and more efficient decisions during the lending process. Loan applications that previously took lots of paperwork and human power can now be accurately processed in seconds with AI.
Data Analytics
Non-banks use data analytics to uncover consumer trends and patterns during the decisioning process. By extracting actionable insights from data, these lenders can make better decisions while adapting to ever-changing markets, keeping themselves at the vanguard of the financial industry. More borrowers get access to the funds they need, and lenders miss fewer opportunities.
Envestnet | Yodlee Alternative Lending Solutions
Envestnet | Yodlee stands at the forefront of innovative solutions in the alternative lending world. Our suite of alternative lending solutions is designed to empower financial institutions, keeping them ahead of the trends we discussed above (as well as trends that are only just emerging). For a glimpse into the future of lending, explore our Alternative Lending Data offerings.
