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Fintech: A Trillion Dollar Industry Gaining Momentum in the Market
For young professionals, it is tough to afford lavish gadgets at the end of the month but putting funds together overnight has become possible, all thanks to money lending apps. Several such apps have sprouted over the years who offer quick financial aid. According to The Boston Consulting Group (BCG), the new 3-1-0 model is gaining popularity because it takes 3 minutes to decide, one minute to transfer with zero human touches. Five million such loans have been sanctioned to both customers and small and medium enterprises. The total value of digital landing space will exceed $1 trillion by 2023.
Lenders and Buyers
Consumer lending has become one of the biggest components of the digital lending space. A single app is needed to meet the financial requirements every month. Over the last seven years, 1,000 such fintech startups have been launched, as per BCG. Such a digital banking app can grow exponentially in growing markets by disbursing thousands of loans and adding thousands of customers MoM. An average user of such app is around 26 years old and most of them are in their first jobs residing in metro cities.
Young professionals get attracted towards fintechs because either they are too young to get a loan or their credit score has not matured yet. The biggest reason why youngsters are drawn towards digital lending apps is that of their ability to lend money in real-time. If a customer shows up at 3:00 am then the money is credited by 3:05 am.
Currently, all credit models are built on the income side of the transaction but as fintech industry is growing the expense side is becoming important as well. Various shopping/spending habits are acquired as alternative data and based on this data a decision to offer a loan or not is made. Traditionally, risk models can be audited by the banker but the newer data comes with variety and is huge in numbers. So, bringing the same governance is a big challenge.
Tech giants are set to enter the fintech game and they are armed with customer database. This might be troublesome for fintech startups. Fintech boom is formalizing the lending.
To overcome the data testing and risk model auditing challenge is tough. Plus, Tech giants entering the game will make things even tougher. Fintech companies can collaborate with each other to use each other’s resources to take care of the risk model auditing challenge. To compete with the tech giants, fintechs can collaborate with financial companies. P2P fintech can inform the bank about potential lenders and the bank can buy those loans from a fintech. Banks and fintechs can form a deeper partnership creating a shared digital platform that uses incumbent's large investment share.