For decades lending was a standardized, yet tedious and time-consuming procedure. It also involved lots of human interaction and work. But it’s about to change — or rather is changing right now — with new technologies and solutions helping banks and fintech companies in simplifying and automating the process, thus cutting downtime, costs, and risks.
A typical loan application would mean going to a brick-and-mortar institution — a bank in most cases — where you would be filling dozens of forms, providing piles of documents and IDs, then the staff would spend hours on verifying your information and analyzing financial data. The final credit scoring and decision would be ready even days after. This waiting time equals problems for an applicant, especially when it’s a small or medium business in a dire need for the money necessary to keep the business going. The delay strikes also at the lender, since no money, or rather interest, is made during this period.
Another factor that should be considered when thinking of traditional lending process is the risk resulting from imperfect credit scoring. Errors in documents, human mistakes or even deliberate fraud attempt can be fatal in the end for either of the parties: the lender or the borrower.
This is where Lending as a Service (LaaS) steps in. Using technologies such as automated KYC procedure (when an applicant is authenticated through a verified third-party account — after a successful logging in to an online bank account, for instance) or credit scoring (for example by analyzing the borrower’s bank account data with algorithms that embrace machine learning) the whole process is shortened to a fraction of time, counted in minutes, not hours or even days, and the outcome is much more reliable. After all, the final decision is based on thorough calculations and more precise predictions, which guarantee less risk.
LaaS is not only about reducing time and effort, nor the automation and much better estimates thanks to a complex analysis involving artificial intelligence. It’s also about enabling access to money for SMBs, which was hurt by 2008 financial crisis. The negative effect of this turmoil — aside from billions of dollars lost forever — includes stricter regulations, tougher lending requirements and higher costs of loans. For small and medium-sized businesses, especially in the very first years of their presence on the market, when their credit history is scarce and their capital is almost of no value, this means a barrier that is practically impossible to overcome. If not for LaaS companies, finding funds for a new venture would be a dramatic experience.
It may sound as if LaaS was an alternative to bank loans. Well, it could be, since there are LaaS providers which are not banks at all. Fintech companies like Ezbob can provide loans from their own funding or serve as a middleman or a broker of the best offers from banks and other financial institutions such as investment funds, venture capitals and so on. But LaaS platforms may also be used by the well-established players in the banking industry to keep pace with the new, fintech competition and better respond to market needs by reducing time, costs and risks of their lending processes.
Lending as a Service is a modern, innovative and accessible approach to loans in the era of Banking 2.0 — banking without the need of banks. With LaaS, money can be borrowed online 24/7 from anywhere, using just a mobile device with internet access, and the funds will show up on the borrower’s account within hours. There is nothing more convincing for today’s entrepreneurs.