LendTech Market Research

Technology has opened up a new market for consumers, small business and business loans since 2007.

“LendTech” has the potential to transform the finance industry. Other types of technology have disrupted retail and travel. LendTech is the next frontier. Some LendTech companies are balance sheet lenders that offer short-term loans. Other companies use a peer-to-peer model, providing bigger loans for longer terms.

One of the things LendTech companies have in common is that they use technology to run a credit market. They operate this market at a lower cost than old-style bank loan platforms. They pass the savings on to their clients in the form of lower rates. They pass it on to their financiers through solid returns. They favor both consumer and investor. These companies are thus earning high satisfaction ratings in the financial services industry.

Who Uses LendTech?

Small businesses use LendTech. For example, Amazon makes funding available to its sellers. The online market giant caters to many small businesses. It is in a unique position to know the selling history of these businesses, and which ones can handle a loan.

Consumers also use LendTech. For example, they use services like PayPal credit to buy items they couldn’t otherwise afford. They also use LendTech for personal loans and mortgages.

One of the significant advantages of LendTech is that it offers low-interest rates. Businesses and consumers also use it because LendTech loans are easy to secure. Lenders who don’t qualify for loans from the traditional sector can now be eligible for funding.

How Does LendTech Work?

LendTech uses complex algorithms to match creditors with borrowers. It does this matching according to the specifications of each party. These platforms assess borrowers according to their credit scores. They also look at social media activity to link the two parties at favorable interest rates. Borrowers fill in their details on online applications. They then upload supporting documents on the portal.

LendTech lenders use bank-grade security. They also provide real-time notifications about the loan application status of prospective borrowers. Their system makes efficient communication between lenders, borrowers, and third-party brokers possible. It allows for faster, more straightforward engagement. Playing phone tag and using insecure email exchanges are things of the past.

LendTech Opportunities & Challenges

The market opportunity for LendTech is immense. The consumer lending market in the US alone is almost four trillion dollars. Smart startups have been exploring the traditional lending models. They are stepping in where the traditional lenders have chosen to retreat. Some specialize in niche markets, such as student loans. Others, such as Lendio, do not grant loans. Instead, they provide a matchmaking service between lenders and borrowers.

For now, LendTech companies have the advantage in quick online loans. Banks may surpass them yet. Some banks are moving at a rapid pace to develop their technology. A few are already selling their technology to others. Another challenge is regulation. LendTech companies have to bear the overheads of regulation. However, some are not able to easily collect deposits. Other problems may be on the horizon, and will only manifest during events like a recession.

Artificial Intelligence

Artificial intelligence can check much more information than a human can. This capacity generates efficiencies for lenders. Often LendTech companies use this technology together with human control. For example, a LendTech company might use AI to rate customers. They would then pass customers above a particular rating to a manual loan assessor.

Why is LendTech Important?

Traditional banks are holding on to an outdated lending model. Our society has become more complex, and borrowers need fairer assessments for funding. LendTech can do rapid assessments of prospective borrowers’ online reviews. It also uses background checks and other indicators to determine one’s fitness for a loan. These factors will impact the future of online lending. LendTech may well become the first stop for individual and business borrowers.

Market Size & Opportunity Assessment

• Number of internet users
• Number of smartphone users
• Number of bank account holders
• Number of users of online financial services including:
• E-commerce
• Mobile/online banking
• Mobile money
  • Number of personal loan holders
  • Formal sector personal loan volume
  • E-commerce market size
  • Number of FinTech companies operating locally

Growth Assessment

• Growth of all consumer lending (retail, mortgages, car loans)
• Growth of e-commerce, (as a proxy for growth of internet business)
• Growth of internet users
• Growth of mobile/online banking

Competitive Assessment

We can explore the competitive environment. 

• What online lenders, if any, currently operate locally?
  • What types of products do they offer?
  • How well funded are they?
  • What is their portfolio size? (best effort)
  • What type of customers do they serve? (banked/unbanked/SMBs, etc.)
  • What offline non-bank lenders operate locally?
  • How many of them are there?
• Profiles of leading online competitors
  • What is their average loan size? What are the loan terms?
  • Are their loans collateralized?
  • What are their credit-worthiness evaluation techniques?
  • What are their origination channels? Are they 100% digital or do they have an offline component?
  • How are loans disbursed? In cash? Into a bank account?
  • What are their fees/interest rate?
  • What is their default rate?
  • How fast are they growing? Why?
• What strategies have they implemented to mitigate regulatory challenges and/or risk? 
• Are they in partnership with any banks or other financial institutions?
• Are they homegrown or did they enter from another market?
• How did they enter the market? Greenfield? Acquisition? Partnership? What worked about this strategy? What didn’t?
• What are their key differentiators/competitive advantages?
• What are their overall best practices?
• What are their biggest challenges?
• What other competitive factors are present in the market?
  • What risk might they present?
  • Mobile micro lenders.
  • SMB lenders.
  • Informal market.
• Potential entrance of other regional competitors.

Regulatory Assessment

• What are some insights into the regulatory environment?
• What are the regulatory challenges facing online lenders?
• If legislated regulations are unclear, where is the debate headed presently?
• If no regulations are present, is there any discussion in the legislature?
• What creative solutions have competitors or other FinTechs employed to adapt to the current regulatory environment?
• What regulatory risk exits, if any?
• How are FinTechs regulated, if at all?
• Are there any laws pertaining to online lending?
• Do online lenders need a banking license, or must they partner with a bank to operate?

About LendTech Market Research and Strategy

SIS FinTech Research and Strategy conducts comprehensive research solutions including:

• Customer Interviews
• Focus Groups
• Market Opportunity & Entry Assessments
• Competitive Analysis
• Usability Research
• Customer Surveys and Research