The alternate lending industry is rapidly growing, perhaps fuelled by constant innovations in the fintech arena as well as increasing investment awareness. Notably, this is a marked departure from the past, when investment opportunities were primarily a game for more prominent institutions and the wealthy.
Today, there are several kinds of alternative finance, including peer-to-peer platforms to ones which are similar to institutional lenders but with significantly more flexibility. Moreover, the lending formats are very diverse, ranging from mortgages, crypto loans and payday loans.
For investors, startups and entrepreneurs, alternate lending presents a plethora of benefits which has already begun disrupting the old rules of finance and opened up a realm of new possibilities. Let's take a look at three which have already seen popularity in the past few years.
Profitable Investments.
Gone are the days where alternative lending was dominated mostly by peer-to-peer platforms with little to know institutional underwriting. Today's alternative landscape is mainly run by businesses creating their proprietary platforms to ensure that processes are as effective and scalable as possible while ensuring maximum profits.
Several hedge funds now participate in alternative-lending markets, which is an indication that the industry is fast becoming a significant competitor to traditional finance models. These models are especially inviting for investors who desire higher returns and are willing to accept higher levels of risk.
Big Data.
Big data is a notable driver in every sector of the fintech revolution, and alternative lending is no exception. Several companies have started operating in the space and have started deviating from traditional systems in rating applicant's credit scores.
In today's data-driven society, the ability to collect data and process it at an unprecedented scale means lenders can evaluate thousands of data points. One notable benefit of these new approaches to credit scoring is that alternative lenders can capture specific segments of the population who would receive poor ratings with traditional metrics. This isn't always because they are not creditworthy, but because their lifestyles might not fall under normal parameters. For instance, Millenials who commonly don't use credit cards or other groups who don't regularly use traditional banking institutions don't fall under these conventional parameters.
Several alternative-lending businesses utilise information gleaned from unconventional and sometimes strange sources to evaluate applicants. These sources include shopping behaviours, smartphone screen time and even how well they've organised their contact lists. Of course, there are legitimate concerns from the public and lawmakers about privacy and data security, however, it's clear that big data is paving the way for revolutionising finance and alternate lending is leading the charge.
Diverse Industries.
In the past, there have generally been industries deemed more appropriate to invest in, especially for institutional lenders. These perspectives haven't changed as fast the realities found in society and the financial sector have, leaving many potential profitable industries in a state of limbo with regards to funding.
The legal cannabis industry, for example, still finds trouble with finding funding from traditional banks and lenders. Of this course, this is because technically, cannabis cultivation for commercial distribution and sales thereof is still illegal. In South Africa, citizens are allowed to grow much as one plant for use at home. However, many head shops who deal with expensive propagation kits and lights for cultivation still find it difficult in some cases to find funding. It's here where the legal side of the cannabis industry can benefit from alternate lending.
Eventually, more industries of this nature will begin emerging, and the flexibility of alternate lending will become a driving factor in the efficiency and effectiveness of how entrepreneurs and investors come to agreements which fuel innovation and expansion of businesses, while also making profits for each party involved.