How FinTech Affects the Lending and Credit Market



By Declan Yin // in Finance


Financial technology, or FinTech, refers to the synergy between finance and technology that enhances financial services by digitizing them. As with other facets of business, FinTech has also reshaped the lending and credit market worldwide.

Today we will explore how a FinTech lending platform differs from traditional lending, the changes such platforms have brought to the credit market, and what advantages and risks are associated with them.

FinTech Shapes the Scope of Lending and Credit Market

The lending and credit market has been vastly altered since the introduction of FinTech companies and FinTech payments. It has led to major changes. Here are some of the most prominent:

  • Processing time of applications and claims has been drastically cut down;
  • Operational costs have been reduced since fewer physical and human resources are required;
  • Convenience for all parties involved has increased consequently with online services;
  • Accessibility for the masses has heightened since there are more avenues for lending now;
  • Diversity of services has increased owing to alternative lending products and credit scores.

These changes have also resulted in sharp growth in this sector. New businesses are rapidly emerging even though an oligopoly existed not too long ago, indicating the mammoth size and profitability of this market. FinTech’s effect on the lending and credit market has proven particularly beneficial for small and medium-sized businesses and first-time borrowers who stand a fair chance of getting loans now.

Even the traditional banking sector understands the significance of FinTech and the need to automate and digitize processes to leverage the most out of technology. Thus, banks and financial institutes are also increasingly offering lending products and services heavily reliant on technology.

Key FinTech Technologies That Drive the Market Development

While FinTech encompasses a wide range of technologies, there are certain key FinTech technologies that are essentially driving and defining the market.

  1. Artificial Intelligence

The augmentation of human intelligence by AI, is being used in the form of smart assistants and chatbots that help users gain an in-depth understanding of their individual credit plans and personalization.

  1. Big Data

One of the main reasons FinTech has so successfully transformed the lending and credit market is due to the presence of Big Data technology. Traditionally, lenders relied on limited sources of data to determine a borrower’s creditworthiness. Furthermore, the creditworthiness for first-time borrowers and small businesses was often assessed as extremely low. 

The concept of Big Data has enabled the gathering of vast amounts of information from multiple data sources. This helped companies find relevant patterns and associations, leading to more reliable credit scores and credit risk scores today.

  1. Machine Learning

Machine learning can be applied to existing customer datasets to determine the segment(s) that have a higher propensity to take a loan. This can be helpful in designing personalized plans for them and marketing strategies. Eligibility checks can be automated to get real-time decisions. The prediction of the probability of default and, thus, risk-based pricing can be made precise with machine learning algorithms.

The Advantages and Risks of FinTech Digital Transformation

The following are a few of the most noteworthy ways in which FinTech trends have revolutionized this sector:

  • Reduced Costs

One of the most astonishing achievements of FinTech in the lending and credit market is the disruption of the oligopoly. This has lowered the barriers to entry for new participants in the market, offering smaller fees and lowered rates to borrowers. In addition to this, with automation and minimizing human involvement, FinTech has even eliminated the need for a middleman, further bringing down the overall costs.

  • Faster Processing

Traditional banks can take weeks or even months to approve a loan, whereas FinTech lenders can complete the processing, approval, and release of a loan within 24 hours. In fact, there are several FinTech lenders that can process a loan within a few minutes only. With easy access platforms, such as mobile applications, websites, and integration with social media, technology has enabled faster transactions in lending and credit.

  • Stronger Credit Score

By pulling data from alternative sources and making use of innovative strategies to assess the creditworthiness of applicants, digital lending often leads to stronger credit scores. Moreover, this is very helpful when there is a lack of sufficient traditional data since other information about the potential borrower can be taken into account.

  • Diverse Lending Products

The changes that FinTech innovation has brought to lending services have highly diversified this market. Today, there are alternative lending models that use strategies different from conventional lending. For instance, with peer-to-peer lending, no deposit is required by the borrower, and lenders can simply earn interest by giving loans to others.

  • Broader Audience Reach

The reduced costs, consumer perks, savings, convenient process, and availability online that FinTech powered lending and credit services offer lead to a very broad audience reach. The scope it covers is beyond incomparable when it comes to the traditional lending market.

As with everything involving technology and, particularly, the use of the Internet, FinTech has introduced certain risks to the lending and credit scenario globally.

  • All platforms operating under FinTech solutions are vulnerable to security threats and risks. Cybercriminals are usually far more sophisticated than traditional scammers and have the added advantage of no physical presence monitoring their activity.
  • With automated credit scoring, if the algorithm is not carefully designed, there are risks involved, such as unfair interest rates and poor risk management. Furthermore, lenders might also draw inaccurate conclusions and rely on incorrect credit scores.


Today, not only has FinTech enabled the streamlining of the out-of-date traditional lending process, but it has also made it far more transparent. That being said, this is just the start, and the future of FinTech is inevitably promising with rapid advancements in technology and how it is resolving the challenges faced by traditional lending. Although cybersecurity remains a persistent issue for this market, refined solutions are being implemented to mitigate any associated risks.

About the author, Declan Yin

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