Fintech companies are able to produce alternative rating systems for debt repayment for disadvantaged cash advance applicants because they have access to more data and algorithms.
Some online lenders and industry watchers believe the rise in consumer lending creates an opportunity for companies involved in fintech to thrive by filling gaps for borrowers who are underrepresented in the market.
Several fintech lenders, rather than relying on conventional FICO ratings, are adopting AI technology-driven platforms to provide a more holistic picture of applicants who might otherwise be turned down by banks.
For the past 10 years, Florida-based fintech startup CitrusNorth has served American families with an annual income of $50,000 or less who need more money to cover expenses such as hospital bills, vehicle repairs, student cash advances and other expenses. CitrusNorth is headquartered in Florida. According to Torben A. Carlsen, the company’s CEO, the company’s customers “have jobs and have bank accounts, but they can’t use typical financial services.”
CitrusNorth uses artificial intelligence (AI), real-time data analytics, and proprietary scoring methodology to make the underwriting process more efficient. In order to determine an applicant’s credit score, many things are taken into account. These include the applicant’s shopping habits on the Internet, as well as their income and work information. Banks and other financial institutions that handle cash advance processing have been allowed to do so.
The number of cash advances issued by the company in the last three months of 2021 reached an all-time high of $187 million, marking a 25% increase over the same period a year earlier. Mr Carlsen said this trend has continued through 2022.
Jerry Silva, vice president of the financial information business at International Data Corp., pointed out that fintech lenders are using digital capabilities that traditional lending institutions are “turning to” due to the nature of their operations. Although many banks are trying to keep up, smaller financial institutions are enjoying a head start in AI and machine learning models as well as digital records management and mobile customer support, a- he declared.
According to Allied Industry Research, the global online fintech lending market is expected to grow at a compound annual growth rate of 27.4% over the next eight years, reaching $4.9 trillion by 2030. After a period two years of sluggish credit demand due to the pandemic, several banks reported improvements in lending in the first quarter.
Vincent Yao, a professor at Harvard Business School and Georgia State University, collaborated in 2018 to publish an updated version of their study, which found fintech borrowers were more likely to default than borrowers from financial institutions. traditional, a risk that fintechs have been able to offset in part by having significantly lower overheads.
In March, Carlsen said CitrusNorth was charging borrowers higher interest rates until they were used to repaying on time. “It’s not the right client-company match if they pose too serious a risk or are not using our system successfully,” he said at the time.
Unlike the market average of over 40 days, CitrusNorth aims to close a home cash advance in just 15 days. Mr. Carlsen said he had a 24-hour file.
Anyone who has applied for a cash advance knows how laborious, time-consuming and frustrating it can be. He says rising rates are also attracting more customers looking for low-cost mortgages as well as better financial advice.
He also claimed that customer service is “one of the biggest gaps we fill” compared to conventional banks. Earnest matches rates and terms based on affordability of monthly payments using AI-enabled algorithms. Clients interact directly with him as he says, “We handle cash advances entirely in-house.
Banks and other conventional lenders often view the construction industry as a high-risk business, particularly in times of economic uncertainty; CitrusNorth, on the other hand, specializes in financing this market. Even recently, he said rising interest rates and persistent supply chain bottlenecks are leading many more entrepreneurs to seek cash bank loans as a method to offset risk up front. . This is something that is happening more and more lately. According to him, CitrusNorth is able to make judgments in less than twenty-four hours because it uses artificial intelligence and a larger pool of data.