A big part of why fintechs are taking up so much of the space in the financial industry is because of their lending practices. Online lending technology combines all the positive attributes that fintechs have and banks lack and allows for people with bad
credit to access loans and possibly get out of the bad financial cycle. 2019 was a big year for Fintechs overall. They established themselves more strongly and confidently on the market, started conversations about possibly replacing all other forms of financial
services or working very closely together with them. Online Lending also had its breakthrough moments last year, when the large investment really started to flow into the industry and the technology started spreading more evenly across the world.
This is a trend we’ve seen in the overall fintech industry and it seems like the technology will keep moving in that direction. Online lending is opening up the lending technology for those who have previously been denied this service and it has been one
of the most successful endeavors of 2019. Everyone around came around to the idea that this sort of financial services really have an audience. Online lending also covers business loans as well as personal ones and follows the same, more simplified approval
process along with more competitive rates, so it’s no surprise that this technology has become a go-to, even for those who would have an easy time applying for a loan in a traditional bank as well. Since online lenders
use algorithms to determine whether or not someone qualifies for a loan, it allows for the loans to be issued almost instantly, which is mostly what makes them more appealing to those looking for a loan. When compared to the very drawn out procedures at
the bank, the low chance of getting approved by the bank and the significantly higher interest rates it's easy to make a choice in favor of an online lender.
Although they might seem more risky since the industry is somewhat new and some people don't seem them as reliable, to those who don't want to deal with banks the choice is still a no brainer. There are downsides to online loans as well, because if it wasn’t
a case then they would be putting the traditional lenders out of business immediately. There is a lot more room for fraud in the online scene and those who chose to work with online lenders have to look out for the legitimacy of the company way more than those
who work with more traditional institutions. Although the technology is constantly evolving, we will likely see the increased security measures be applied to the industry soon enough. Companies offering online loans are popping up everywhere and their success
rate has exceeded expectations. Similar to Uber, now we actually have various online aggregators like
Monzi that help to find bad credit loans from a great number of online and offline lenders at affordable rates.
The technology has been gaining a lot of attention from the financial industry, attracting major investments and gaining momentum, so let’s go over the top investments that happened in this field and what they point to regarding the patterns in the online
The online lending company that is based in Hamburg, Germany was on the receiving end of one of the biggest online lending technology investments of the year. Kreditech uses AI to make judgments about potential borrowers in developing countries, who have
very little or no credit score. Kreditech has been around for a while and is a company that targets mostly emerging economies, provides loans and point-of-sale financing to near-prime borrowers in Poland, Russia, India, and Spain. For the last few years, the
company has shifted its focus from people who don't have a credit history, to those who have one but it’s just not that good and this demographic is called “near-prime’ borrowers.
The German online lender received
a $22 million funding, from the Russian VC Runa Capital along with a German private investor, who remains anonymous. Through its latest funding, the company is focusing on the Indian market, which has been a part of for years. In 2017, Naspers PayU invested
over $110 in Kreditech for the company to enter India’s financing market. This year’s funding of around $20 million might not seem like much compared to some other fintech fundings, but this particular round came around for a pretty rough period for fintechs,
so against the backdrop of pretty much no big-scale dea, this was a pretty important funding round, even if it wasn’t the largest, because of its impact on India’s financial market. Kreditech holds first-of-its-kids non-banking financial company license in
India, which is one of the largest and fastest-growing markets in the world, which all the major companies want to experience and enjoy. Kreditech thinks of India as its niche and plans to focus more and more on improving their services there. Since Russia
was involved in the company’s biggest funding this year, it is likely that the Kreditech will also expand its presence in Eastern Europe and tap into the near-prime borrower market there. The importance of less explored markets is often overlooked when it
comes to online lenders but it seems like Kreditech is choosing this specific strategy to establish its place in the online lending industry and it has worked pretty well for it so far.
Rupeereed is a Gurugram-based new-age digital lending platform, which operated under Finstar, an international private equity firm operating in Europe, the U.S, Asia, and Latin America. Finstar mostly focuses on fintech projects and RupeeRedee is one of
the most successful lending platforms in India. This year they raised $6 million in funding from their parent company, Digital Finance International, a member of the Finstar Group. RupeeRedee has been issuing personal loans to India’s underserved masses including
self-employed, and first-time borrowers. Overall the RupeeRedee covers those who have been rejected by the traditional financial institutions and with this funding, the lender started to work towards better services and enhancing the technology for issuing
loans, so they can better evaluate new borrowers and increase their efficiency. In India,
even salaried customers will often turn to online lenders because of the better offers and deals. Because people don't have strong credit histories they usually are reluctant to turn to lending facilities. But RupeeRedee is not only helping the customer
with their land but they are also helping them to build a better credit score since most of them will never get that opportunity with the regular financial institutions. It is not attracting around 1 million visitors per month and they facilitate over 10,000
loans a month. Rupeedee is another successful example of a funding round elevating the whole company, and it is quite likely that we will see RupeeRedee expands all across India and outside its 25 main cities.
Become is an Israeli startup that operates a business lending marketplace and focuses on SMBs. It has one of the most impressive funding rounds that close at $10 million in Series A investment. This round was led by Benson Oak Ventures and Magenta Ventures.
According to Become, the Israeli lending market is quite inefficient, especially for SMBs since 57% of the are denied access to funding. Become gives the opportunity for these businesses to build up their credit score, and issues loans according to the algorithm.
They offer their clients a personalized plan and they keep track of their spending to
help the industry become more transparent overall.
Not only is the goal of tracking systems to make the businesses more transparent but it will also help them in relation to the banks and future, bigger loans they might need to take out. The way banking systems work is that they dont give SMB’s a chance
to even know why they got rejected in the first place, so they often fail to change whatever is holding them back. Become wants to change this unproductive dynamic and give the firms a better insight into their spending and why they might not qualify for a
big bank loan. Businesses can get loans in as little as 3 hours so a lot of SMB’s are not chasing this method over the traditional one, which will likely have to result for them in the end. By offering these loans, Become is actually helping businesses to
develop in the right direction. Become has to compete with lending marketplaces and business profiling products but the company is pretty optimistic since they are the only ones that can provide these services completely online without having to go through
any elaborate procedures to get approved. It is truly an innovative product that makes the whole lending process much easier and accessible.
Looking into 2020
The fact that online lending technologies have become so popular point out that there was a huge gap between the demand from the public for more accessible loans and the bank’s offers.
Online lending technologies are not only changing the industry standard but they are actually helping the businesses and people to create a better credit score to possibly finally access the traditional loans coming from the banks.
Even though banks have never been interested in those with bad credit scores, seeing the success of their online lending technologies they have actually started to wonder about the collaborations and projects with these sorts of companies.
Online lending platforms attract so many investments and fundings because the future of lending might actually be in their hands. The banks have become a dread to deal with, especially since easier services like online lending have become available. When
you compare the benefits of using these online landers instead of banks it becomes harder and harder to lean towards working with traditional lending firms just because the approach is so different from the ones we see with startups. People who from whatever
reason never had the opportunity to work on their credit score finally get the chance to access the services that can benefit them so much, and since banks never cared to create something similar the loyalty of these customers will lay with online lenders
for a long time since even after they build their credit score they might still prefer the easy-going online loan over the overly complicated bank loan.
2019 was an important year for online landers since the major strategies for taking these companies to the next level were finally established and the majority of doubts around the technology have simply vanished due to their success. In the following year,
the funding will likely become much more substantial, allowing for these lenders to improve and expand even more. There is also a possibility that we will see some major changes in the traditional banking industry, where the banks try to follow the example
of online landers in order to not lose their customers. A lot of industry experts are predicting close collaboration between fintechs and banks, and there’s a good reason to believe that collaborations will happen in the lending area as well. It will take
the willingness on both sides to collaborate and put competition aside, but considering the many opportunities these two will have together there is a good chance that more traditional institutions will find a way to cooperate with innovative fintechs. But
even if the fintechs will stay alone in their journey it will still be a year full of new opportunities, based on their success during the previous year.