Fintech and its Impact on Traditional Banking

The assignment delves into the transformative influence of Fintech on conventional banking systems, particularly highlighting Peer-to-Peer (P2P) lending and Equity Crowdfunding as key areas of disruption. It analyzes both the benefits and drawbacks of these new financial models for investors, lenders, and borrowers. Furthermore, the assignment scrutinizes the risks and challenges posed by Fintech to traditional banks, examining how they can adapt and manage credit facilities effectively in this evolving environment.

CREDIT ANALYSIS AND
LENDING MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
REFERENCES................................................................................................................................9

INTRODUCTION
Crowdfunding and the P2P lending is the approaches which leads to development of
Fintech in the practices and marketplace of lenders and borrowers. This brings large amount of
challenges to the banks and other financial institutions because of extended services of credit
facilities given through increased growth of fintech in activities. This system integrates the
investors, borrower actions, donators and the person having amount funds to distribute or give it
to other for lending. This provides an easy access to the needs of people as well as provides an
convenient and user friendly accessible base to the use to collect money from various sources
available over the medium of internet (Kolapo, Ayeni and Oke, 2012).
In this particular report discuss about the challenges faced by the banks and other
institutions engaged in financial services. The reason behind the development of these challenges
and risk for the revenue generation by banks are also described in this assignment. The various
platforms used by fintech in order to extended the credit services to the clients appropriately by
peer to peer lending and equity crowdfunding are also describes in this respective assignment
effectively.
TASK
Credit Facility and lending
It is important for financial institution and other platforms to manage their lending
effectively through carrying out an efficient credit analysis for market development and
generation of returns. The credit facility is an loan or the companies are borrowing from various
financial platforms like banks and other institutions lenders. These loans and credits can be in
form of revolving credit, committed facilities, etc. The companies, people are going for making
funds for in investments from crowd funding and investing in stock market and capital markets.
Extension of credit and loans by financial firms has been continuously challenged by the growth
in Fintech. The companies can access to lending facilities over the medium of internet
(Bhattacharya, 2011). The lenders also providing loans to the clients with flexible time period of
repaying their credits.
Financial Platforms
Internet has bring large number of revolution to the investors market and creditors
market. This internet has collaborated market of lenders, investors, borrowers and donator of
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money. There have been developed many financial platforms in today world which provided
credit facility in marketplace to the borrowers who wants to invest in market. Some of the
financial platforms which increased by development of fintech in marketplace are defied as
follows: Peer to peer (P2P) lending: This working model of P2P lending states that there are
many investors and institutions who are acting as capitalist to the borrowers in
marketplace. This respective model allows an person to borrow money from different
investors and lenders who can be an individual or an institutions who is having
availability of financial resources and wants to lends its money in market. Companies are
engaged in providing credit facility to borrowers in order to make more money to gain
interest from loaned money in addition with the repayment or recovery of principal
amount. Equity Crowdfunding (ECF): This is an business framework which provides an potency
an person to make an investment in any type of start-up or small enterprise in dealing of
equity shares of respective business firm (Weber, Scholz and Michalik, 2010).
Traditionally the investment is limited in the hands of venture capitalist or big investors.
But this respective model of equity crowdfunding allows an person to make investment in
shares of different companies to get dividends over his initial contribution to the
financing small business or start-ups which are listed in stock market. These ECF
financial platform provides securities to their contribution as an lender for the company
or borrowers.
Benefits of ECF and P2P lending platforms in credit analysis and lending management
These respective business model provides large numbers of benefits to the new investors,
Small business enterprises and also to the borrowers in marketplace. Some of the benefits of ECF
and P2P lending platforms are as follows:
Larger accessibility to capital market- These models provides better accessibility to the
borrowers to the capital market especially for the Small and medium enterprises as these bodies
are not having accessibility to get loan or credit amount from banks. ECF provides wider area to
access the equity finance by individuals or business organisation.
Advantage over various costs- P2P lending financial platform is working with lower
interest rate and having less margin over the interest on principal amount which helps borrowers
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to cut down cost as compared to banks. ECF also provide direct accessibility to the investor of
small business in equity as this not have to follow up cost of initial public offerings and
procedures.
Challenges and various risks to the above mentioned financial platforms
Every thing has some of the advantage sin marketplace while this is also comes up with
some of the associated risk and challenges to work appropriately in investors and borrowers
marketplace. The risk associated with the P2P and ECF business framework based on three
consequences or challenge which is providing protection to investor, developing financial
stability and maintaining transparency and efficiency in markets. The various risk and challenges
associated with these models are described below.
Risk of unlicensed actions: These financial platforms may claims that these bodies are
not bound to follow any regulation in action as they are simply providing services to the clients
and involving parties and acting as mediators (Golin and Delhaise, 2013). But this proven that
these platform are engaged in providing compensation over their services to investors which may
leads to risk of unlicensed action and regulated activities.
Risk of disclosure: The P2P and ECF model are lacking transparency in system. These
bodies never disclose the clear information about portfolio of their credit facilitates and loans.
These framework of financial business lack standardisation in actions in comparison with this
securities in public market follows up defined standardisation in their action.
Challenges to financial institution by Fintech because of unbundling banks
In today is growing and developing world there is an emergent needs of new start-ups of
financial organisation which implements digitalisation in actions and big data tools and
techniques aiming to unbundle the bank activities. This is an major challenge and risk for the
banks as the internet and online services of credit facility as well as P2P and ECF framework has
grown up new era for investors, borrowers and lenders by integrating al the activities at single
platform i.e. Online. The magnified rivalry because of establishment of Fintech organisation in
marketplace the representing an potential level of threats for banks and other financial institution
in practical working environment. If the banks will not become responsive towards the trending
activities in marketplace then this will reduce significantly amount of revenue generated by
banks. As per McKinsey about 10 to 40% of the bank revenues and approximately 20 to 60% of
financial firm profit is at risk till the end of 2025. With helps of investment in new technologies
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the banks can develop highly secure wide network over the medium of internet which enable
client to make less expensive transaction and settlements. Bitcoin with the use of block-chain
technology the banks are going far for development and face challenges in the marketplace
responsibly.
Various factor affecting growth of Fintech credit facilities and lending management
Drivers are the factor or the aspects which bring newer innovation in Fintech. These
factors can be described in two ways the aspects which as as Supply factors and other one of
demand aspect. The supply aspect largely influence the development of Fintech as these are the
perspective of the different platforms in the credit facility and lending management. While
demand factors constitutes of borrowers and lenders which also affects the Fintech growth in
marketplace (Albertazzi and Marchetti 2010). The lenders developing Fintech platforms in use
will helps in establishing an automotive process of crediting and lending money form the
lenders, donator and investors which helps in providing fast and efficient services to the clients
and users like borrowers. Working framework based on platform model of business helps in
reducing the investment cots as well and digitalisation bring higher and faster accessibility to the
clients by company or new start-ups. The facility to the demand factors largely influence the
Fintech development in marketplace. Like for example technology of real time transaction
results in increased expectation of lenders and borrowers to work with speed and cost
management. These Fintech companies are also focusing on the demand factors by providing
user-friendly accessibility to the platforms of financial services.
Extension of credit facilities of Banks are being challenged by development in Fintech
The extension of credit facilities can be stated as expansion of services of loan and
lending to the wider areas. The banks and other financial institutions activities and revenues
generation is largely affected by the development and growth in the fintech technologies. The
Fintech can be defied as providing services to the investors, borrowers to lend money and
exchange financial funds between each other with helps on online transactions. The banks are
enable to meet-up all the demands of their clients they are not able to develop Fintech
technologies in actions This develop an greater challenge to the continuous profit making by
these financial institution. Finetch integrates all the activities and leads to unbundling banks
action which is an major risk and uncertainty to the growth of banks and financial organisation in
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practical world. So, extension to credit facility in bank are challenged by Fintech development
which have to be managed by banks by acting responsibly towards the issues.
Crowdfunding platforms
The crowdfunding can be defined as the platform for the collection of funds from mass
public or crowd for investing in new start-up. This can be also described as that this is an
technique of lending money from the large numbers of people by individual or any institutions.
In today scenarios equity crowdfunding is trending with the development of Fintech in
marketplace. This particular platform of equity crowdfunding helps in exchanges and deals of
money with the company shares (Bachmann and et. al., 2011). The people invest in the equity
shares of an organisation in order to get some of the dividend from the profitability of firm as per
the some percentage over the invested principal amount by persons. This equity crowdfunding
also involves selling of shares to the another company by an small enterprise or new start-up in
order to get financial help for investment for growth of firm.
Advantage of Crowdfunding platform to the investors
This platform is beneficial to collect large amount of funds without paying any upfront
fee. This also an fester technique to collect the funds required by investors from the mass public.
The upward movement and growth of any start-up and new enterprise can be benefited through
the crowdfunding as use of online platform can be valuable and efficient way to market the
business and also results in higher media attention which helps in developing an good brand
image and value in marketplace. The crowdfunding involves collection of investment funds from
the large number of people which involve sharing and communicating the idea of development.
This sharing of thoughts, plans and ideas will helps in getting expert guidance as well as good
feedback to improve the process of development.
Disadvantages to the equity crowdfunding for the borrowers in market
Crowdfunding is beneficial for the investors and new start-up plan in the marketplace to
large extent as this helps in collecting the funds without any extra cost. But this platform also has
some of the disadvantage that may develop an risk and threat to growth of firm and new
establishment. However the disadvantage is not only connected with the crowdfunding platform,
these cons also contribute to the venture capitalisation investing. One of the major disadvantage
to this platform of development is that there has been recorded that an high rate of failure in
development of businesses is seen who are not having required investment funds and are seeking
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for the collection of money and investment through crowdfunding platforms (Spencer Franta.
2017. The Disadvantages of Equity Crowdfunding). This also can be identified that this
technique is having lower of level of liquidity in marketplace.
Expanded role of capital market in helping potential borrowers in marketplace
The enlarged function belongs to capital market and the credit system based on
capitalised market which results in decrease of growth and development of bank sector is not in
with the resulting in decrease in development and growth of banking sector. Diversification and
higher level of competition in marketplace leads to increased effectiveness and efficiency. This
also results in lowering the incurred transaction cost in financing for the economic growth.
Banks also introduced embryonic incentives described by EU commission in order to established
an capitalised market union for future needs. The banks are continuously engaged in developing
new ways of financing to the new investors, start-ups in market which linked to the capitalisation
in market by distributing securities and trading to the users and clients effectively. The banks and
other financial institution are developing extended credit facility to facilitate the people and
companies to borrower their services effectively.
Establishing financial stability through implication of Fintech credit facilities and lending
management approaches
Because of small size of the credit issued through Fintech is restricted the direct influence
of financial stability across the main jurisdiction and legislation as compared to the extended
credit by the intermediaries present traditionally in marketplace (Canales and Nanda, 2012).
Nevertheless, importantly large number of shares of Fintech credit facilitates in fiscal system
may also contributes to brining financial stability and reacting to risk effectively in marketplace
in future. There are many benefits to the extended facility of credit by the fintech in the market
of lending and borrowing money which bring higher level of diversification in provision related
with they credit and lending funds.
Various threat to the extended credit to the banks
The banks and other financial institution is having large number of threat because of
development of online market of lending and borrowing money. This is faster and convenient to
the user to lend or borrow funds. The online fintech technology provide an user friendly
accessibility to the services to the investors. This also helps in crowdfunding over the medium of
internet by reaching large numbers of people to collect funds for start-ups. So, banks are going
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through large numbers of threats because of extended and developed credit services because of
new technologies implications in marketplace.
Analysis technique to credit facilities
Credit scoring system is an appropriate technique which can be used in order to analyse
the loan facilities in banks effectively. This system used new trichological implementation in use
in order to analyse the trends in marketplace, changing interest rates etc. This develops an
concrete credit portfolio for the bank for its credit and lending facilities given to the borrowers
and investors.
Risk return characteristic of credit application
Banks are responsibly active towards the analysis of the risk return characteristics over
the the particular principal amount of borrowed money by the lenders. The amount associated
with risks and borrowing of the the money is collected by bank given the investors or borrower
as an evidence and proof that money will be returned by individual to bank or financial
institution.
Statistical approaches and techniques used to avail credit facilities with help of Fintech
The techniques used by the borrowers or the investors can be peer to peer lending. This
defined the different stages of lending the funds from the lender by borrower. fintech provides
services to integrate the activities in which lenders, borrowers, investors, business organisation
are engaged in order to capitalise their funding requirement by various means with help of online
technology (Emekter and et. al., 2015). The peer to peer transaction of money does not involves
any actions or activities of bank or other financial institution. This exchange of money is
between the individual or business organisation. While another technique to fulfil the lending
demands by borrower is the implementing of equity crowdfunding which involves purchasing of
shares in deals of money and expecting to earn more money over the principal invested by
getting dividend from the profitability of firm or new start-up.
Risk Management of the extended credit facilities by banks and financial institutions
The banks can follow up various legislation given by the government of country in order
to manage the associated risk with in actions related with the legal complication in commercial
functioning environment. The banks should have all the required information about the borrower
for the bank as needed by Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
stated by the Federal Reserve who revealed information about the borrowers or the companies
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who receives loans form banks. The banks should also manage all the risk associated with
repayment system of the loans and interest to lenders appropriately.
CONCLUSION
At the ended of this assignment, this can be concluded that fintech develop an integrated
system of functioning in order to deliver services to all investors, lenders and borrowers in
marketplace. This is the technique which provides an online accessibility to the investor to
collect the required amount of funds. The various techniques used in peer to peer lending and
euqity crowdfunding. Both of the approaches have some of the disadvantage as well as
advantages in their application. But the financial institution and banks have to manage all the
associated risk and threats with the these defined platforms. The extended credit facility are
brining large amount of challenges for the banks and negatively affecting the revenue and
profitability of these institutions because of development of fintech. The banks should implement
various approaches to bank to the credit facility as well as associated risk effectively to make
continuous profit by banks.
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REFERENCES
Books and Journals
Albertazzi, U and Marchetti, D. J., 2010. Credit supply, flight to quality and evergreening: an
analysis of bank-firm relationships after Lehman.
Bachmann, A and et. al., 2011. Online peer-to-peer lending-a literature review. Journal of
Internet Banking and Commerce. 16(2). p.1.
Bhattacharya, H., 2011. Banking Strategy, Credit Appraisal, and Lending Decisions: A Risk–
Return Framework. Oxford University Press.
Canales, R and Nanda, R., 2012. A darker side to decentralized banks: Market power and credit
rationing in SME lending. Journal of Financial Economics. 105(2). pp.353-366.
Emekter, R and et. al., 2015. Evaluating credit risk and loan performance in online Peer-to-Peer
(P2P) lending. Applied Economics. 47(1). pp.54-70.
Golin, J and Delhaise, P., 2013. The bank credit analysis handbook: a guide for analysts, bankers
and investors. John Wiley & Sons.
Kolapo, T. F., Ayeni, R. K and Oke, M. O., 2012. CREDIT RISK AND COMMERCIAL
BANKS'PERFORMANCE IN NIGERIA: A PANEL MODEL APPROACH.
Australian journal of business and management research. 2(2). p.31.
Weber, O., Scholz, R. W and Michalik, G., 2010. Incorporating sustainability criteria into credit
risk management. Business strategy and the environment. 19(1). pp.39-50.
Online
Spencer Franta. 2017. The Disadvantages of Equity Crowdfunding. [Online]. Available through:
<http://www.floridafunders.com/equity-crowdfunding-disadvantages/> [Accessed on
19th September 2017].
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