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The traditional banking sector of the United Kingdom is under attack from clients. Extortionary fees, bureaucratic red tape, and high denial rates have resulted in a burgeoning new industry – non-bank online lenders.
Despite historically low interest rates in the UK, currently at 0.50%, British banks are slow in approving personal loans, instant payday loans, and other lines of credit. Banks are in the business of protecting their assets, and they are reluctant to approve clients with less than sterling credit scores. Now that the Brexit is in full swing, many multinational financial enterprises are looking outside of the UK to foreign capitals. This exodus has had a negative effect on bank lending for unsecured loans.
Fortunately, this market flux has a saviour in the form of non-bank enterprises and online lenders. The digital marketplace has been bolstered by the arrival of innovative FinTech companies now competing with banks for customers around the United Kingdom. The 2008 global financial crisis placed tremendous pressure on High Street banks. They dramatically curtailed lending, resulting in a large unsatisfied market of borrowers. Online lenders filled the void by presenting borrowers with innovative innovative technology to make lending quicker, easier and hassle-free. Things like personal loans, overdraft facilities, instant payday loans, and debt consolidation loans are now available from lenders.
People in the UK like elsewhere across the world are reluctant to spend their valuable time frequenting a land-based bank or financial institution to conduct a routine business activity. The pressures involved in applying for loans, being approved, and having to sit down with consultants are unnecessary, and unwanted. Digital applications are all the rage, and many big banks are now synchronizing traditional banking services with online products to play catch-up. For example, Barclays Bank and HSBC have now created voice-recognition as opposed to PIN numbers for logging into accounts. A staggering statistic was recently released – online logins amounted to 895 million in the UK in 2016, compared to 427 million visits to a local UK branch. This gap is widening fast, and banks will do well to take note.
Private equity enterprises have funded many of these new FinTech ventures, and banks are playing catch-up. The online loans industry is fully regulated by the FCA, and clients are opting for these licensed non-bank lenders for instant payday loans at what they deem to be affordable interest rates. Now, thanks to greater transparency, customers have recourse with payday loan lenders, and they can pick and choose at leisure. The complexity and all-encompassing nature of non-bank online lenders outperformed those of big banks. Mobile applications, online loans, instant approvals/denials are preferred by customers who are in urgent need of bridging finance, instant loans etc. Thanks to loan aggregator platforms, UK patrons can easily compare interest rates (APRs), terms and conditions associated with credible online lenders. Banks such as HSBC, Lloyd’s, Barclays and the like are now imitating the services provided by these FinTech Enterprises, or simply employing consultants to develop the equivalent FinTech operations.
The unsecured lending market came under tremendous pressure in the UK in 2013. At that time, Financial Conduct Authority (FCA) licensing was required for all non-bank lenders to remain operational. Of the 50,000 consumer credit companies seeking licensing, only around 50% were approved. The rest exited the lucrative UK online loans market. Given the low interest-rate currently in the UK, it comes as no surprise that the profitability of these payday loan lenders has diminished over the years. Nonetheless, they can remain viable by offering premium-quality services without the red tape imposed by banks. Various new products and services are now available from payday lenders, and they are leading the way with innovative modern technology. Mobile apps, instant approvals, limited complexity in applications, multi-stage loan repayment options, and competitive pricing are the order of the day.
Lending models now include social media, telephone, live chat, snail mail, SMS, mobile applications, mobile web, Internet, email etc. The interfaces between the company and the client have been expanded for maximum convenience. Customers are lapping it up, fully satisfied with the ease of conducting business vis-à-vis online loans and a premium range of products and services. The architecture of these instant payday loans is so advanced, that banks are hopelessly out of their depth. This is evident in the application program interfaces, loan management systems, and fully digitized lending models.
FinTech is powering this industry, and meeting the needs of clients all over the UK. Data-driven financial modelling has made it easier to drill down into individual market segments by way of a loan calculator to evaluate the affordability of various online loan options for clients. Moneylending services across the UK typically offer up to £1,000 within 24 hours upon approval. These lenders are transparent, credible, licensed and regulated, and they can leverage big data for better loans and more personalised services. According to Wired, the payday loan market is worth an estimated £27 billion in the UK? Is this accurate?, and it is growing fast. Banks are scrambling to adopt the same technology, and provide banking services to the un-banked and under-banked across the UK.
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