Definition and Concepts of FINTECH
FinTech is one of the world’s leading technology utilized by the majority of the financial institutions, business owners, and consumers to manage their financial activities through specialized software and algorithms used by the computers. The term FinTech is a combination of “financial technology” used to describe an innovation that has been created to influence how people transact in their businesses from the invention of having digital money to double-entry bookkeeping. According to Laurent and Vauclin, the majority of the financial institutions have adopted financial technology as a business model that provides a close interaction between customers and the organization. FinTech has significantly influenced the financial sector by making headlines for its significant contribution and developments in the economic sector. The concept of financial technology has also influenced businesses to make transactions using crypto-currencies such as bitcoin.
FINTECH as Digital Lending Platform
The use of the FinTech lending platform has significantly increased over the years. The majority of the people with small scale businesses could not access credit from the banks. The FinTech movements target the underserved borrowers who have challenges in accessing extra finances for their businesses (Vives). The digital lending platform is more convenient compared to the traditional channels of borrowing. The new-age of lending utilizes the concept of Artificial Intelligence and Machine learning techniques in the documentation of clients’ details.
Traditional Bank loan vs. Digital Lending
Bank loans refer to financing products offered by the bank to business owners in need of additional funding. The qualifications of traditional banking were so demanding, and most of the people could not meet the threshold required. Digital lending is a platform provided to offer financial services to most of the people who do not meet the qualifications for traditional bank loans. Digital lending has gained popularity among most nations because of its attractive terms.
3.1 Advantages of Digital Lending over Traditional Bank Loan
Most people prefer digital lending over the traditional bank loan. One of the primary benefits of digital credit is online access to financial services. Digitalization provides the customers with an opportunity to do their registration online either through the computers or their smartphones. The application is also made online, and the documents are uploaded for verification within minutes. The majority of the traditional banks process and approve loans within six to eight working days, thus cannot be relied upon during emergencies (Vives).
Digital lending involves minimal paperwork compared to traditional bank loans. In the digital platforms, the creditworthiness of a client can be determined within minutes after they have filled the necessary details. At the click of a button, the company, using their lending parameters, can evaluate the ability of the client to repay. Unlike traditional systems, applicants are not required to provide collaterals for their loans. Digital lending is very flexible and convenient for customers. Rather than going to the physical bank buildings, the customer can apply for the loan at their suitable places.
According to Turnkey Lender, the financial service industry is very vulnerable to cybersecurity. In digital lending, the majority of the decisions are automated, and software systems dynamically manage data. A small glitch in the system would result in high risks for the company . Some of the cyber safety practices incorporated by digital lenders include having a solid foundation of the system. Through artificial intelligence, the companies can detect fraudulent applications, preventing account take-overs, deploying a cloud-based platform for lending, and detecting cross-device use. The advancement in technologies provide companies with an opportunity to improve their efficiency in offering financial and banking services.
Top 5 digital Lending Platforms in the Philippines
The number of digital lending platforms has been increasing over the years. In the Philippines, the top five commonly used FinTech companies include; Home Credit PH, Tala, Cashalo, CashMart PH, and Lendr. The top online digital lending companies in the Philippines are considered to be the most reliable and have a significant number of users.
Home Credit PH
The Home Credit Corporation in the Philippines. The company was founded in 1997 as an international financial service provider to persons with little or no credit history (Home Credit). The company operates as a global finance company in 9 countries across the globe. The vision of the company is to provide its clients with a seamless flow of funds at their convenience. As at 30th June 2019, the company had issued up to 211,154,090 loans. According to Google play store over 5 million Filipinos trust Home Credit PH. Eligible persons to apply through the Home Credit platform must provide two IDs of which the government issues one and state their current address. The person must be a Filipino between the age of 18 to 68 years, either employed or self-employed. After registration, the applicant visits any shop that has partnered with the Home Credit FinTech and selects the goods they would like to purchase.
Thirdly, one of the company’s sales agents, assists the client to purchase their items and approve the contract. After the approval, the client is expected to make a down payment as the company caters to the remaining balance, and the customer will repay the amount in monthly installments.
The repayment scheme depends on the type of loan applied by the customers. The consumer loans are installment-based, cash loans have higher interests and can be paid between 6 months and three years, the payday loans are short-term, and the customer’s next paycheck pays the amounts. The other types of loans offered; secured, unsecured, and the credit score determines advance-fee loan payment. The company recommends that customers should make payments three days before the due date to avoid unnecessary delays. The customers are required to pay transaction fees depending on the channel of payment. The loans can be repaid earlier in two options; partial early repayments or full early repayments. Compared to other FinTech in the Philippines, Home Credit Corporation allows their clients to repay their loans without any extra fees and interest if they make a full early repayment within the first 15 days after signing the contract. The loan applications are also approved within the day compared to banks. The company has also invested in financial literacy for their clients.
Tala is an online lending platform in the Philippines that offers services through an Android app. The registration process requires the person to sign up using their Facebook account. The company targets individuals who need quick cash from as little as Php1000. The amount can be paid either on a weekly basis within 21 days at an interest rate of 11% or within 30 days at an interest of 15%. The loan applications are approved within 24 hours after the application has been submitted. The maximum loan limit is at PHP.25,000 and the application requirements include a phone and ID.
Cashlo is among the leading digital lending companies in the phillippines. Clients access the services through the Cashlo mobile app for android and iOS. The platform offers fast, affordable and secure services which allows customers to access quick financial services. Eligibility requirements include; a government ID, company ID, bank account details, and a payslip. The loan applicant should download and register their account using a simple procedure.
The process of the loan application starts with log in to the account using your phone number, complete your profile, choose the loan amount and payment terms, wait for the loan to be approved, and the cash is sent to the customer within 30 minutes. The company’s interest rate is 4.95% per month and the maximum loan limit is Php 10,000. Depending on the clients credit score, the loans approval process can take 1 to 2 business days.
The company was established in 1969 and its operations are based in Singapore and has extended its services to Philippines. The key requirements for the loan application is a valid ID either issued by the company or government, payslip, and providing two proof of billings such as water bill, internet, cable, Meralco, or PLDT bills. The digital lending platforms offers a variety of products including: personal loans, Car loan, salary loan, and OFW loan. The interest rate is charged at 3.5% based on the payment scheme selected. Clients can either settle their credit in weekly, bi-weekly, or monthly terms. CashMart PH offers loans between P5,000 to P50,000 and the amounts are approved within 24 hours of business day. Currently, the company has about 30,000 residents using the services in Phillipino. The company is expecting an increase in the number of clients due to the growth in credit opportunities.
Lendr is one of the biggest digital lending platform in Phillippines. Last year the company recorded a double digit loan growth. Unlike the other company’s discussed. Lendr does not offer clients with cash directly but they serve as a broke between the borrower and the lender. The financing is acquired from the banks but the conditions favor the borrower. The terms of borrowing varies depending on the bank chosen the borrower will adhere to their processing time. The maximum amount offered by the bank is significantly determined by the client’s monthly salary. Interested customers are required to: create a profile and an account with Lender, fulfill the loan application form requirements, and attach scanned documents needed by the bank.
According to Sung, FinTech is a cross-disciplinary concept that combines knowledge from Finance, Technology, Management, and Innovation. The FinTech techniques are innovations that are precisely developed to improve the financial services offered by organizations. The inventions are uniquely designed to address the needs of the business in different situations. The online transactions by the FinTech businesses are legitimate, and transactions can be done at a global scale. An article by Forbes, the interaction between digital technology and financial services is growing so fast, and more people are switching to the network. The FinTech startups are successfully thriving, and by 2015 $14.5 billion had been invested in the sector, which is high compared to $7.3 billion in 2014 (Villasenor). The FinTech movements provide their customers with services at their comfort. The values applicable by FinTech companies focus on four primary areas that are vital to providing quality service to the customers. The technology caters for payment systems, advisory service, financing, and the compliance of the customers to the organizational terms and conditions. Some FinTech platforms like the Home Credit provide financing for individuals who would like to purchase things with a small down payment. FinTech is significantly broadening its operations due to its capacity to reach a broad network of customers as they offer flexible financial services using top-notch innovations.
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