Lending Fintech

A fintech can evolve to become a bank, with all the associated capital and regulation requirements, or can apply for specific lending licenses, such as a P2P (peer-to-peer license) or Credit Funding License. A PSP can also potentially become a white label for any Credit provider.

An interesting example is Habito. It is a UK digital mortgages start-up that offers a platform to help users apply for mortgages and avoid overpaying. The platform makes use of chatbot interfaces and machine learning designed to make the process more efficient and offers access to mortgage products from a range of lenders.

Peer-to-peer Lending (P2P)

Here, the Fintech works like an intermediator or two-sided marketplace, where one part will be the lender (as an individual, group of individuals, or institution) and the other is the (individual) borrower. A similar model is Peer-to-Business lending where a match is made between the lenders and a business.

Normally, the P2P provides lenders with the credit information of the borrower and advises on interest rates to be charged. However, the decision on lending belongs to the lender and not the P2P company. The P2P cannot use its capital for funding, and its share of the revenue will come from the service on advising, linking the two sides, and managing the lending and tracking collection.

These lending models are making it easier for investors to get better returns than those offered in the financial system. The borrower gets access to resources that otherwise would not be available to him/her (for lack of a credit record for example) or at more competitive rates.

Credit Funding License and other credit products

The regulator can provide a credit funding license for an individual or a company to use its own funding to lend money to individuals or companies. The funding is limited to the company’s money, and it cannot use money from other individuals or companies. It is a model that looks sometimes like the older factoring model, as it can require some collateral.

Out of this emerges many other credit solutions markets such as small ticket loans, short-term (or payday) loans and other niche operators that may, for instance, such as lend to a specific supply chain, or for specific workers.