How Data Played a Big Role In the Success of Online Lenders

How Data Played a Big Role In the Success of Online Lenders

Earlier there was an understanding gap between lenders and borrowers.  The lenders could not understand the expectation of the borrowers.

The plight of borrowers:

Borrowers were finding it difficult to face the paperwork of the lender.  They found it very difficult to follow up multiple times with the lender.  Despite undergoing all the difficulties, they had to face rejection of loan requests.

The other side of the coin:

Lenders had their own difficulties.  They need a reasonable spread to cover their expenses.  With the diminishing interest rate trends globally, they find their profits decreasing.  Moreover, they face the issue of bad loans.  They are burdened by the legal stipulations of the statutory bodies.

Banks has the advantage of using low-cost deposits for lending at a high rate.  Initially, online lenders had the issue of getting funds at a high cost.  They had to use the funds to lend the borrowers.  Hence, they had to lend at a high rate to cover the cost.

Online lenders:

The world of finance is always ruled by elements of risk.  At one side, we can see numerous investors having surplus funds.  They aim at multiplying their wealth and invest only in good choices like crypto.  They read investment reviews like BTC profit review and are interested only in huge profits.  At the other side, we can see numerous borrowers who are in desperate need of funds.

Most of the banks have a well-built brand image.  They had the privilege of turning down loan requests when they anticipated defaults.  Online lenders did not have an established brand image.  In such a circumstance, data came to their rescue.  The online lenders were instrumental in the development of proprietary algorithms.  Hence predicting the prompt repayment or default of loans was easier and accurate.  Online lenders smartly used data to capture specific borrowers.  They took the help of social media for this purpose.  Slowly the online lenders were able to rule the terms of the loan.

Big data helps in the creation of a complete profile of the prospective borrower.  The latest development is the creation of machine learning algorithm.  This algorithm can handle a huge volume of data and arrive at minute patterns which escape the eye of human analysts.  Hence automating less risky loans is very easy now.  Machine learning algorithm helps in comparing customer behavior with the data of normal borrowers.  Hence detecting frauds well in advance is very easier.

There is no doubt that data is the prime reason for the success of online lenders.