Consumer lending continues to generate revenues for not only traditional banks, but for a new breed of technology – based lending platform as well. While this vertical continues to be both attractive and lucrative, it has yet to catch on with investors in Asia. Examining this unique and ongoing investment opportunity requires users to invest like a bank and to fully, transparently understand how a specific platform works and performs.
Consumer Lending’s Enduring Popularity
What factors make consumer lending so appealing to investors around the world? From the ongoing, never ending demand to the “stickiness” of the investment, the constant flow of income is one of the biggest benefits of lending to the consumer market. The small size of the average loan, combined with the overall amount of lending happening equates to minimal or drastically reduced risk for the lender.
The system of consumer banking was established decades ago, and remained unchanged for many years; the past several years have seen a dramatic shift from this typical path. The sheer diversity of the marketplace leads to opportunity for a new generation of lenders that rely on technology and innovation to connect with and serve consumers.
Investing Platforms Appeal to Consumers
Innovative technology and brands that are dedicated to serving the needs of customers online resulted in an abundant and thriving ecosystem of fintech platforms. These online-only concerns are agile and adaptable. They are also open 24/7 and have low overhead. These factors, combined with a minimum physical presence makes investing platforms cost efficient and allows them to pass these saving onto consumers.
Consumers enjoy lower rates, more transparency and in the end, better service than they are offered from a traditional or conventional bank. Flexible lending, affordable rates and easy access to products has helped drive these consumer-friendly platforms to success and chipped away at the offerings of the ponderous and bloated traditional banking industry. The customers are there, ready to borrow, but where do these platforms get their money? From investors.
Investors Make Fintech Consumer Lending Possible
Investors power and benefit from the diverse and popular platforms focused on consumer lending. For investors in the United States, access to lending opportunities is surprisingly simple. Those outside the US, particularly in Asia, do not have such a clear path. According to Federal Reserve Bank of St. Louis, consumer lending continues to offer strong returns, with an average gross interest rate of 14% in the second quarter of 2017. Along with these consistently strong returns, consumer lending is low risk, with a low failure or loss rate, making it an attractive proposition for investors.
Challenges for Investors in Asia
Connecting investors in Asia to this diverse and thriving market offers incredible advantages, but there are some clear challenges as well. Lack of transparency and familiarity pose a barrier for investors, who need to be able to assess individual platforms fully to ensure success. Clear information and transparency would greatly improve opportunities for these would-be investors and help them not only enter but thrive in the consumer lending space.
When these investors can fully research and understand the opportunities and risk associated with each platform, they can make informed decisions. Ultimately the entre of investors from Asia into the consumer lending market will benefit all involved, from the platforms themselves to the end user in need of a loan.
By Samantha McNesby