Brief History of Lending Innovations

Finance, or rather funding, has been an integral part of any civilization, since the beginning of time. Whether it was through barter or indigenous lenders, funding has played a major role in each and every part of the world. This is also the reason why; lending and financing have been domains that have evolved and grown rapidly over the years and metamorphosed into more effective and creative forms.

Ever since the arrival of fintech, the lending sector has been growing at an exponential rate. With the likes of mobile money lenders, P2P platforms, marketplace platforms, and online lenders, consumers today have faster and better access to finance and the ability to live more comfortable lives. The thought of making the process of financing quick and easy for end consumers is what has fueled the growth of fintech and lending giants. By continuously studying emerging market trends and ways in which end consumers can have easy access to finance while protecting lender’s interest (pun intended) fintech has been able to keep satisfying the financing requirements of the world at large.

Here’s a look at how the lending landscape has evolved over the years, since the very beginning of technology infusion into the process of lending.

5 Major Innovations in the History of Lending Technology

The reason why and how fintech has been able to stay alive and thriving all these years was due to their focus on creating solutions to simplify financing for end customers and small business owners, accessing credit for whom could often be a harrowing and time-consuming experience. By simplifying lending for them and by creating platforms for both institutional and non-institutional lenders, fintech has been able to narrow the gap of supply and demand and thus created a better financing ecosystem for all.

1930s: The first of the lending innovations

The Grand National Bank of St. Louis, Missouri, introduced the drive-up bank also known as the drive-up teller, way back in 1930s. This was a time when both banking and cars were considered a luxury and thus it was a new and bold move for that time. However, the luxury component attached to the car, led the bank to accept only deposits for the time being.

As time rolled on and cars became more commonplace, the Exchange National Bank of Chicago evolved the system of drive-ups to accept both deposits and allow withdrawals. The drive-ups were kiosks much like today’s ATMs, only that they were manned desks operated by bank officials sitting behind bulletproof glasses and accepting and disbursing cash through drawers that could be accessed by both teller and customer. This was a pioneering step towards making banking easy for customers by making their money more accessible to them. This same thought would go on to fuel more ideas to create solutions that would facilitate handling finance both own and credit, in the years to come.

1950s: The advent of the plastic card

The credit card has been an absolute boon to customers by making easy credit accessible to them, thereby helping them purchase furniture, appliances, and major home items, which were both expensive and necessary, easy.

The story of how the plastic card came into being is as interesting as the product itself. It was the Bank of America that introduced the credit card by way of a small experiment whereby it issued 60,000 small plastic cards to borrowers in the city of Fresno in California. Each piece of plastic gave the owner access to $500 in credit. The bank wanted to see if there was a way in which credit could be extended and be used readily, at the same time. Needless to say, the experiment was a roaring success and thus the modern-day credit card was born. The experiment came to be known as the Fresno Drop and was responsible for the launch of the credit card industry and the massive change in the way customers and borrowers started thinking about and using a line of credits.

1970s: Money when you want it with ATMs

The Automated Teller Machine (ATM) was truly an innovation of the future when it was first unveiled and installed in New York in the year 1969, by the Chemical Bank. The idea of accessing your money anywhere and anytime without having to worry about queueing up in the banks for hours was a thought, customers embraced and loved. The convenience and speed of cash disbursement through the machines spelt the success that ATMs garnered in the 70s and still continue to enjoy. Banks have gone ahead and added some new features to ATMs, such as opening FDs, recharging phones, paying bills, changing ATM pins, as well as applying for small-ticket personal loans which do not require face-to-face bank interaction. ATM machines too, have facilitated easy lending to customers and hence considered one of the important innovations when it comes to digital lending.

2000s: Mobile banking and phone apps

With the advent of smartphones, fintech has further evolved at a radical pace. Right from mobile banking whereby customers can check their bank balances on their phones, transfer money in a matter of seconds, manage financial to-dos, invest, maintain a personal finance balance sheet and more, there is no end to the features customers have access to these days and they are always looking at and expecting more enriching features and faster transactions than ever, thus keeping the fintech industry on its toes with a promise of booming business for years to come.

Fintech: A boon for SMBs and MSEs

As small and medium businesses along with the micro and small enterprises rise in India with entrepreneurs showing an optimistic outlook towards their businesses growing exponentially, lenders are also seeing the promise of growth by lending to this flourishing industry. With fintech creating solutions which help churn out small business loans in a matter of seconds, SMBs can now dare to dream big without worrying about line of credits, long processing times, high fees and interest rates and just focus on their core competencies thereby increasing turnover and profits. Fintech offers loan origination tools that use multivariate regression analysis that cover a large number of borrower variables such as their credit scores, ratios such as debt-to-income ratio, loan-to-value ratio, annual percentage rate among others to help find creditworthy applicants and the right lending rate. This new step is the latest feather to the cap of digital lenders using fintech tools. Delinquency prediction and machine learning on the other hand help lenders make alert choices when it comes to loan origination. Thanks to Big Data, tech companies now have access to rich data sources with sample sets large enough to run studies and analyses on. Thus, these tools make for reliable sources for lenders to find more customers and offer loans to the right ones at the right rates.

There are seven major digital lending models that can be found all around the world, they are:

• Online lenders
• P2P platforms
• Marketplace platforms
• E-commerce and social platforms
• Supply chain lenders
• Tech-enabled lenders
• Mobile lenders

E-commerce and social platforms are the next steps in digital lending. With access to real-time data on the business of sellers using their platform to sell, e-commerce giant Amazon, set out to sanction $1 Bn in credit to 20,000 small business owners in the U.S., U.K., and Japan. If set in motion, this will be an attractive business proposition for e-commerce giants across the world and the newest digital lending platform to be added to the long list of illustrious digital lending innovations.

Fintech and digital lending hold the keys to a brighter future with many more innovations, increased business, better lifestyles, and a more professional borrower-lender relationship lying on the horizon.

  • March 7, 2019