Examining the role of personal loans in the Fintech industry

David Banks's picture
Authored by David Banks
Posted Thursday, March 14, 2019 - 6:08am

The market for digital, app-based financial services continues to grow at an incredible pace, and that growth rate will continue to soar in 2019. There are already hundreds of new fintech start-ups entering the marketing with their own solutions, including digital banks, personal loans, and other financial services.

When reviewed from a more detailed perspective, it is evident that loan-related services are what has been – and will continue – fuelling the rapid growth of the industry. The demand for better and cheaper loans as well as greater access to them remains the highest on the market. Are personal loans the future of fintech?

Underserved Market

Despite the efforts of conventional banks and financial institutions to make their personal loans more accessible, this market segment remains the most underserved in the entire financial industry. There are two reasons behind the lack of supply in the personal loans segment, the first one being a rapid growth in demand.

With the economy being at its present state, more people need personal loans to fill gaps in their budget. It is not always possible to rely on savings and insurance when an emergency arises. In this circumstance, people turn to personal loans as the best solution to use.

The underserved market presents the perfect opportunity for fintech companies to seize. Instead of offering loans in a more conventional way, fintech start-ups can make their personal loans available digitally, reaching more customers and capturing more of the market. Conventional banks are still the dominant stakeholder, but their market share is decreasing fast.

Flexible Personal Loans

Fintech start-ups needs to be fluid and flexible by nature. Their main goal is not to serve similar financial products to customers, but to deliver solutions that customers really need. This is why many fintech companies who offer personal loans are becoming instant hits with their customers.

iLoans is a good example of how fintech companies can be more flexible with their products. iLoans helps its customers to apply for personal loans online ​via their website. The entire workflow of applying for the loan is improved and fine-tuned to the customers’ needs.

When customers visit iLoans for a personal loan, they are presented with a number of options. They can borrow anywhere from £100 to £5,000 directly on the website. They also have the option to choose a suitable loan term, with the longest one being 36 months.

The application process is very refined. Rather than filling out paperwork and preparing documents, customers only need to fill in a simple online form. The review process is faster too, allowing customers to get the money they need within hours.

Rather than conforming to the conventional ways of offering personal loans, iLoans took the extra steps to really understand the customers and what they really need, and then used the insights they gathered to shape their products and services accordingly.

Value-Added Features

Another interesting factor that makes technology-based personal loans very popular on the market is the set of extra features they come with. The entire fintech industry is investing heavily in customer education and in bringing more value to the customers through features and services.

Instead of a simple personal loan, customers get a complete set of personal financial management features. Rather than offering their product as it is, the best fintech companies integrate additional products that are usefulin the eyes of customers.

The roots of these added features and services can be traced back to innovation. The personal loan market is a market with plenty of room for innovations and new ideas, which is why it is so interesting for fintech companies in the first place.

With more room available, fintech companies can also explore new ways to connect with their customers. The use of digital marketing and the way fintech start-ups refine their products are clear signs that more services and features are to come.

Plenty of Traction

It is also difficult to negate the fact that the personal loan market is one of the most profitable markets in the financial industry. The market is sizeable, the customer base is growing, and fintech companies can gain a lot of traction early in the game.

This is a requirement that investors often look for when choosing start-ups to back. With bigger potential profit and the ability to gain traction – and amass a customer base – early, the personal loan industry quickly became the most attractive among investors.

Of course, the market is not without its challenges. There are regulations governing the financial market that fintech companies, including those specializing in personal loans, still need to comply with.

Let’s not forget that despite many existing players, the market itself is relatively empty. The demand far exceeds the supply. In 2018, the number of customers grew to a whopping 19.5 million, with the market valuation hovering around the £30 billion mark.

Transparency

One unique characteristic of the personal loan market is its transparency. The playing field is level and start-ups, both new and existing, can compete by simply refining the products and services they offer. This transparency is the result of customers gaining better understanding on how to best manage their personal finances.

Customers automatically compare loans and offers from multiple fintech companies. The fact that they can now get the loan they need within hours means they can spend more time comparing deals and offers. In a transparent market, the most successful start-ups are the ones who cater to the customers’ needs and wants best.

This too is something that investors appreciate. There is no need to burn through cash to be able to capture the customers’ attention. In fact, many start-ups in the personal loan business simply let their products and services speak for themselves.

From these five discoveries, the fact that fintech start-ups are drawn to personal loans is not surprising. The market will continue to grow at an incredible pace in 2019, so expect to see more digital loans, product improvement, and new innovations on the market. More investors will support these developments too, accelerating further growth in the process.