Peer-to-peer lending bypasses the regulations to which traditional lenders must adhere, which is why the concept took off during the 2008 recession, when lots of Americans were looking for loans that traditional lenders could no longer approve. So for Lending Club to oust its founder and chief executive Renaud Laplanche because of loan irregularities and lack of disclosure on a personal investment isn’t terribly surprising.
When a business doesn’t face any outside regulations, it’s a lot easier for unsavory — and in this instance, illegal — activity to occur.
Even so, peer-to-peer services remain popular. Because of that, traditional lenders are finally feeling pressure to use technology to improve their own processes.
There are several ways technology can improve the loan process for both the lender and the borrower, and we’re already seeing substantial progress throughout the industry.
For example, let’s look at Wells Fargo’s recent move to the online lending marketplace with its FastFlex loan, slated to launch next month. FastFlex ranges from $10,000 to $35,000 and funds can be available as early as the next business day, with a weekly repayment schedule. Interest rates are reported to range from 13.99 percent to 22.99 percent based on the creditworthiness of the business. The program is designed for small businesses that need fast, short-term funding — precisely the kind of borrowers that often flock to online lenders like Lending Club.
Wells Fargo is the first major bank to build an online lending platform in-house, which differentiates FastFlex from other initiatives we’re seeing in the industry, like J.P. Morgan’s partnership with OnDeck Capital.
J.P. Morgan announced the partnership late last year, which combines Chase’s lending expertise with OnDeck’s digital platform to provide small-dollar loans to small businesses as quickly as the same day. Distribution partnerships like J.P. Morgan and OnDeck’s are a great way for traditional lenders and Silicon Valley’s fintech darlings to work together to improve the loan process for everyone involved, and I anticipate we’ll see more of them in the near future.
The mortgage industry is another area where technology is rapidly advancing and improving the loan process. Closing a home loan today takes more time and has become more difficult and costly than ever imagined. Lenders are getting squeezed on margins and bearing the burden of increasingly heavy regulations.
These costs and frustrations trickle down to the consumer, often crushing the excitement of homeownership. The good news is that both of these problems are being aggressively tackled by tech companies working to transform the mortgage experience and bring lending into the digital world.
Mortgage lenders, once trapped in antiquated systems and manual processes, are rapidly adopting digital web-based loan solutions to streamline the process. In addition, we’re now seeing secure cloud-based “loan centers” that are accessible to borrowers 24/7 from computers and mobile devices to check loan status, upload required documentation, sign documents electronically and maintain a digital system of record.
It just takes one bank to innovate and set a new standard before all the others follow suit to stay competitive.
This would not be possible without innovative companies providing the underlying technology to help traditional lenders replace manual processes with data-driven workflows and automation. FormFree, a technology vendor we utilize at cloudvirga, is one such example. It provides automated verification of income and assets in minutes to lenders of all kinds — from mortgage companies, to auto loans and even credit card companies. FormFree’s founder and CEO Brent Chandler tells me its AccountChek solution was born out of a desire to reduce the burden on the borrower, while streamlining the process for the lender.
“The digital transformation is now taking hold in the lending world,” Chandler said. “When digital, or direct-source, information is harnessed properly, that type of shift creates numerous benefits to the lending industry as a whole — from the proper allocation of credit to more liquidity. Ultimately, these proper solutions lead to stability. We like to refer to it as common sense underwriting.”
Finally, as lenders and banks continue to adopt new technologies to improve the loan process, it’s only a matter of time before bots come into play.
Bank of America has already launched a chatbot through Facebook’s Messenger app to provide customers with real-time alerts from the bank, with plans to increase the bot’s functionality throughout the year.
Like we saw with mobile banking apps, it just takes one bank to innovate and set a new standard before all the others follow suit to stay competitive. As such, we’ll soon start seeing other banks launch chatbots of their own — and at one point or another, banks will realize that these bots can help streamline the lending process.
In my experience, there are several questions that almost every borrower asks while applying for a loan, many of which could be answered by a chatbot. Because of that, I believe banks will inevitably start to pass those questions off to chatbots in order to free up loan officer time for tasks that actually require their expertise.
Technology can — and should — be used to improve the loan process, but it should be done without forcing borrowers to gamble with peer-to-peer lending. It’s exciting to see traditional lenders and banks finally starting to embrace technology to move the industry forward in a safe, sustainable way.