The days of getting a credit card to prove your financial independence are far gone. The number of people getting credit cards has dropped as these cards can be associated with unmanageable debt. Most people without credit cards might have declined to get one as they know that they spending habits are not healthy. Those people that lack self-control can find themselves in debt quite quickly with it taking years to pay certain credit cards off. Fintech or financial technology has done a great job of helping out the credit card sector in a variety of ways. The following are just a few of the many ways that Fintech companies are helping the credit card industry.
Can Be Easy For First Time Credit Card Holders
The process of building credit can be a nightmare for those people that might have made some less than intelligent financial decisions in the past. The last thing that many people building their credit want is that of an incredibly high interest rate for their first card. Petal is a great example of a company that offers new credit card holders a reasonable rate as they do not consider past credit issues. Building credit could not be more important as many people will need a decent credit score to be considered for larger loans like that of a mortgage.
Using Untraditional Data To Assess Risk
Fintech companies are not required to use traditional data in order to assess risk of lending a borrower money. Certain lenders have their own custom algorithm that they use in order to get an idea of whether someone will pay the loan back. These Fintech companies that work with these algorithms can allow predictive analytics to thrive as there is no one way to qualify someone for a loan. As a small business owner that might not be as qualified to receive a low interest rate could be more than qualified as things like business plans can be taken into consideration.
Peer To Peer Lending Platforms
Managing your credit cards while in debt can be difficult which has given rise to lending platforms that rely on a peer to peer lending process. This does not require a borrower to know the lender as there are platforms that help make this process as seamless as possible. The lender makes money through interest being charged and credit scores are not usually viewed. The most important part of this process is proving that a business model for a small businesses will yield profits. For this reason getting together earnings as well as realistic projections can help convince a lender to go through with the loan.
Setting up a less than traditional repayment system for a credit card debt can be extremely valuable to the customer as finances fluctuate for many people. This can help the credit card sector in a few ways as it can make debt collection much easier as the customer appreciates the willingness of the company to work with them on a custom repayment basis. The last thing a credit card company wants is a customer to switch credit cards after repayment due to a poor experience with the debt collection team. Fintech companies that offer custom lending plans have an advantage over traditional lending as not all basic loan plans will work for all customers.
Offers In A Variety of Niches
Fintech companies allow customers to take out loans for a variety of reasons. This can offer loans in the student loan, mortgage, and small business sectors. Allowing customers that might not have qualified for a traditional loan to borrow helps increase the size of the market by increasing the number of customers that could receive a loan. Business lines of credit are also quite popular in this space along with factor loans which can be quite useful for a company that needs help with cash flow until clients have paid their invoices.
The credit card sector has found its savior in Fintech companies as it will have to adjust to what customers want. The days of the credit card companies dictating lending policies looks to be fading away as custom loans and repayment plans empower the consumer!