How cloud and marketplace lending have disrupted the world of finance

The traditional lending industry has perhaps evolved to be the biggest beneficiary of the FinTech revolution. Online lending was the first step to this disruptive process, when smartphone apps and websites started offering high-interest loan products to the mass consumer base.

Peer-to-peer lending and crowdfunding then emerged as alternatives to traditional lending products, connecting consumers with a larger lender base, and effectively lowering the cost of borrowing.

New segments like student lending, small business lending, real estate lending, auto loans and purchase financing emerged as sectors in their own right, leading to the creation of a set of niche offerings with global appeal.

>See also: Is FinTech a bubble?

The ability of marketplace lending, a wide term that denotes any lending between two parties, to measurably improve the affordability and accessibility to short and medium term cashflow has helped lending become available to a much wider segment of the population.

The high level of credit worthiness required by traditional lenders and the high costs of borrowing from payday loan firms prevented this segment, comprising both consumers and small businesses, from finding cash quickly, efficiently and in an easy manner.

The marketplace lending space was not just a solution to this – it ended up fulfilling the need for a consumer-driven investment platform. It bridged the long-term desire of consumers to obtain easy short-term loans at affordable prices, with the desires of investors to invest in new channels on a larger scale.

And the impact cannot be ignored – it is predicted that loan originations will hit $1 trillion by 2025, with the current share of 2% for marketplace lenders expected to grow dramatically in the coming years.

This is also a space that has derived from the consumer’s desire to obtain financial services in a sophisticated, cost-efficient manner. The influence of the Google-Facebook-Amazon trio on the consumer’s purchasing behaviour has ensured that they want the best possible price and the best possible experience.

Simplicity, sophistication and intuitiveness became absolute must-haves in the world of financial services, especially with lending. Cloud has been a key driver helping lenders achieve scalability quickly while also helping lower the costs. More importantly, it provided the flexibility to innovate, launch products and structure deals quickly.

Cloud infrastructure and modern lending services are thus interlinked to each other, supporting each other with the pace of innovation required by rapidly changing customer behaviour.

The technology that can help achieve this highly desirable user experience, as well as competitive fees, are key to the growth of this space. Without achieving quick scale, the consumer acquisition costs become prohibitive and the consumer fees are driven higher – again, the right technology has the potential to help scale up without compromising on the user experience.

Most traditional firms struggle with the new wave of price competition from marketplace lenders and the difficulty in innovating with a large amount of legacy systems at their core.

Traditional banks, which monopolised this space by offering products with high fees, limited focus on user experience and an inflexible credit valuation process have begun to use the flexibility of cloud-based infrastructure and innovative lending technologies to attempt to recapture their market share.

The widening gap between the rates of payday lending firms and traditional banks has helped create a whole new marketing in the middle, which is being tapped into from both sides.

With banks focused on improving customer experience and sustaining their scaling and competing with payday lenders on the rates offered, there is tremendous opportunity for traditional players to come into the space.

>See also: How FinTech is finally transforming the financial world

It is also a global phenomenon. Similar trends have emerged in customer switching, along with the desire for quick innovation in countries from Singapore to the United Kingdom to Costa Rica.

With the scale of marketplace lending increasing fast and the cost of borrowing rapidly decreasing, the loan origination volumes are expected to continue to grow at a steady rate.

The fact that most of the world’s large organisations recognise the need for a fundamental shift in the way they work – and offer products and services – is heartening. With the help of the right technology, they will continue to be strong contenders in the space.


Sourced from Eugene Danilkis, CEO, Mambu

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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