Alternate finance is a fast expanding industry that is driven by the constant advancements in fintech and increasing awareness of investing. This is a stark contrast to the past where investment was the sole responsibility of big financial institutions and wealthy individuals.
There are a variety of alternative finance, including peer-to peer platforms and ones which are similar to traditional lenders however, with a lot more flexibility. The lending options are different, ranging from payday loans and mortgages to loans that are made in cryptocurrency. For investors and entrepreneurs the alternative lending market can be a treasure trove changing the way we finance and opening new possibilities that begin with three examples.
The growth of lending alternatives has changed from the time when it was controlled by peer-to-peer platforms that had an institutional underwriting component to a current scenario which is mostly run by firms that have developed their own platforms to ensure that the process is as efficient and as scalable as is possible while also maximizing profit.
A lot of hedge funds participate actively in the alternative lending market which indicates that the market is fast becoming a major challenger to traditional financial models. This is particularly appealing to investors looking for greater yields and who are prepared to take on greater risk.
Based on Daniel Wessels, CEO of Jacaranda Finance, “They’ll be able to benefit from the attractive yield and short duration, which means there’ll be some insulation from rising benchmark interest rates.” Alternative loans like amortisation are also more flexible, unlike traditional loans that have a principal due at the time of maturity.
Big data is the primary factor in all areas that are part of this fintech revolution and alternative lending is not an exception. Many of the companies that operate in this area have begun to depart from conventional methods of assessing an applicant’s creditworthiness based on the criteria set by the main National credit bureaus.
Today, thanks to the capability to gather and process data on a massive size, lenders are able to evaluate hundreds of information points. The benefits of this strategy include that lenders who are not traditional can identify certain segments of the population that might have been considered to be poor in the traditional metrics and not necessarily due to being creditworthy, but simply because their lifestyles aren’t fitting to the standard metrics. One example is young people who do not use credit cards, and others who do not actively utilize banks in the conventional way.
Certain alternative lending companies are now using data from a variety of unconventional (and often bizarre) sources to judge the applicants’ qualifications, including their shopping habits, what they engage in with their mobile phones (including their games played) as well as how they keep track of their contact lists. While some legitimate issues exist over privacy and security of data but what is clear is large-scale data collection is changing the world of finance which is at the most advanced stage of that revolution.
Enabling Diverse Industries
There are traditionally been certain industries that have been deemed to be better for investment, specifically for institutions that lend money. These views haven’t changed in the same way that the reality in the society and financial industry have, which has left certain industries that are profitable when it comes to having access to funding.
The legal cannabis industry is one example. It is unable to obtain financing through traditional financial institutions (primarily because of being technically cannabis cultivation, processing , and sale are still considered illegal in the federal government). This has allowed investors to lend money to promising businesses in the cannabis industry, and benefit from the massive profit and patronage while managing the risks of a constantly evolving regulatory environment.