The evolution of fintech and its impact on equipment financing lenders

Published on February 10, 2021 by Saket Khandeliya

The evolution of modern financial technology (fintech) started in the latter part of the 20th century, and its use has increased significantly in the past 10 years. Fintech is helping companies and customers manage their businesses and risks more efficiently, with financial transactions now conducted very differently. The significant shift towards the technology led to global investment of USD135.7bn in fintech in 2019 (vs USD141.0bn in 2018) across 2,693 deals. Reportedly, 964 funding events helped 722 fintech firms raise USD34.4bn through a number of funding rounds in the year to September 2020, compared to 1,501 funding events that helped 1,070 fintech firms raise USD48.9bn in the year to September 2019. As fintech provides increased cost advantage, ease of business, and growth for investors, more companies are choosing to use fintech in their day-to-day operations. Like other segments of the financial services sector, the equipment financing division is witnessing an increased use of fintech in its process of lending.

Impact of fintech on equipment financing lenders:

  • Managing risk more effectively and efficiently: Managing risk is a lender’s main objective, and the use of technology not only provides companies with cost efficiencies but also helps them minimise the risks associated with lending. The more information an analyst has ready access to and the more algorithm models made available through fintech, the more accurately lenders can determine risk ratings for their customers and funded assets. The increased use of fintech in the lending business has resulted in more robust underwriting standards. The risk rating assigned to a customer or asset is linked to a number of factors that may sometimes be overlooked by an analyst, but the algorithms are designed to capture every minute detail and compare these with peer details. The models built to evaluate data can help make better credit decisions. For example, the automatic financial spreading tool provides a quick overview of the credit and is more accurate than a manual process.

Originally published at https://www.acuitykp.com.

About the Authors

More than 10 years of experience in credit research and with Acuity Knowledge Partners. During this tenure I have worked on financial modelling, con call summary writing, detailed risk rating report writing (including financial analysis, peer and industry analysis), and presenting stressed credits in the review meeting. For past five years working closely with a portfolio management team of an equipment finance department. I have done MBA from Alliance Business University Bangalore and bachelor’s in commerce from APS University Rewa (M.P.)

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/