How will the alternative lending industry fare in the new decade? A vital question that I will attempt to answer in this article.
Unlike a few years ago, when people ask this question now, they are not questioning the stability or the legitimacy of the industry. The undeniable growth of lending platforms and the sheer amount of money they deal with have cemented its position in the financial world. Alternative finance is no longer an upstart, new kid on the block; it is a mainstream sector that is now challenging established banks.
This year will see it grow stronger and become more stable. Here are some trends that could determine the evolution of the alt-fin industry in the coming few years.
Technology
Fintech has always played a pivotal role in the growth (even the very existence) of the alternative financing industry. Till now, the focus of technology integrations has been internal — it has been leveraged more for compliance, risk assessment, cybersecurity, and so on. Now the focus shifts outwards towards customer experience and long-term planning.
I see a clear trend towards more investment in new technology such as Artificial Intelligence and Machine Learning, and for the development of end-to-end, secure platforms for alt-lending companies like Cresthill Capital.
Banks try to catch up
Even though banks make more money from larger corporations, SMEs are still extremely attractive to them. They are aping the ways of the alt-lending sector and integrating fintech in the hopes of replicating some of the alt-fin features small business owners love. It’s an uphill battle because financing companies like Crest Hill Capital don’t just do well because of technology; they give their clients awesome customer engagement, competitive funding offers, and fast service.
Lack of Cresthill Capital complaints and their excellent reputation attests to the fact that great fintech must be supplemented with other factors for success. Banks might be able to pass on some benefits to their customers, but I doubt they will become as flexible or fast as alt-lenders.
Asset management and associated financial services
With so much money and SME customers flowing through alt-lending channels, the next logical step is for alternative lending platforms and agencies to make their considerable financial knowledge available to clients as add-on services.
Already lenders like Cresthill Capital help their clients with an enormous amount of financial advice related to credit options, debt restructuring, managing cash flow, checking the viability of expansion plans, etc. This informal guidance will morph into structured bundled services.
Niche marketing or credit segmentation
As the sector grows and new alt-lending companies enter the fray, they will bring in more industry-specific credit offerings. Newer members who can’t compete with established alt-lenders will try to work only in specific segments and attract customers by offering more value and personalization. With time the entire industry will become more customer-centric.
For example, lenders like the New York-based Cresthill Capital are already offering tailored funding deals for a variety of small businesses in different industries such as medical stores, liquor stores, auto repair workshops, transportation and trucking businesses, nightclubs, retail, restaurants and more. This trend will grow, and funding deals will become even more segmented.
Compliance and growing regulation
As the industry grows, so will the regulations around it. Currently, alt-lenders don’t face the same levels of scrutiny as traditional banking institutions and credit unions. As they are mostly funded via private investors, they have the flexibility to set their own terms and business models, and the industry is largely self-regulated. However, there is a growing demand to set up some framework to standardize best practices. What form these new regulations take will determine how the industry develops in the coming decade.
The Bottom Line
The alt-lending sector in the US is predicted to touch US$34,399.9m by 2023. With so much money passing through it, the industry is impacting the lives and businesses of millions across the country. Of course, alternative lending will evolve and mature with time, but as long as it remains true to its original mission of helping small business owners, it will keep attracting new customers and keep expanding.
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