Why fintech is overtaking traditional mortgage lenders?

With a 7.8 Billion world population, financial technology is impacting a number of industries worldwide. There is also a huge impact on the mortgage market of Fintech Start-ups in 2021. The mortgage Market Industry is a segment of the financial industry that helps people to get a suitable mortgage deal whereas Fintech or Financial Technology is the combination of new-age Information Technology in the finance sector. This article will help you understand how these two sectors are connected with each other and what role they play in the future of the mortgage industry.

What is FinTech?

FinTech is a term used for any company that uses information technology to provide financial services. It can be anything from online banking to peer-to-peer lending. The main focus of this industry is to make it easiest for customers to access their money and use their funds. These companies have made it easy to manage your finances through mobile phones and computers. FinTech has been growing rapidly over the past few years as more and more consumers become aware of its benefits.

Fintech Start-ups:

A start-up is an organization that is just starting out. In most cases, start-ups are small businesses that are trying to find ways to improve existing products or create something completely new. They often take risks because they don’t have much money at stake. Many startups fail, but some succeed and grow into big corporations. Some of the best-known startups include Apple, Google, Microsoft, Amazon, Facebook, Twitter, Netflix, and Uber.

Why fintech is overtaking traditional mortgage lenders?

It is one of the most asked questions in the mortgage industry that why fintech is overtaking traditional mortgage lenders and systems placed by them. As we know, Fintech is a technology-based company that tries to improve financial services by providing faster, reliable, more accurate, safer and most affordable financial services.  In addition, they also offer easy to access solutions that attract consumers a great deal. Therefore, it is not surprising that fintech is taking over the mortgage industry.

How does Fintech affect the Mortgage Industry?

Fintech startups are disrupting the traditional mortgage industry by offering innovative products and services that are changing the way people think about homeownership. By using modern technologies like artificial intelligence, blockchain, machine learning, and data analytics, fintech are able to deliver better customer service and reduce costs.

Here are some examples of how Fintech startups are revolutionizing the mortgage industry:

1) AI & Machine Learning:

Artificial Intelligence is a type of computer software that mimics human thinking processes. Most commonly, Artificial Intelligence is used to solve the complex problems. For example, when a person needs to find a good restaurant nearby, he/she may search for reviews written by previous customers. An AI system would then analyse all the reviews and recommend the best restaurants based on the user’s preferences. Similarly, AI is being used in mortgage processing. A mortgage lender could use AI to automate loan approvals and underwriting. This would save time and increase efficiency.

2) Blockchain:

Blockchain is the digital ledger that records transactions between two entities. When someone makes a payment, both parties must agree to record the transaction on the blockchain before the money changes hands. This means that there is no need of third-party verification or approvals. Since blockchain is decentralized, it cannot be tampered with. So, if fraud occurs, it will be easily detected.

3) Data Analytics:

Data analytics is another area where fintech startups are making significant progress. With the help of data analytics, fintech startups are in position to collect large amounts of data. Then, they can use this data to predict consumer behaviour and identify trends. Once these trends are identified, they can be used to develop personalized offers and promotions.

4) Peer-To-Peer Lending & Crowdfunding:

Crowdfunding is a form of financing where individuals pool their resources together to fund projects. The concept was first introduced in 1980s as a method of funding music albums. Today, crowdfunding has become popular among entrepreneurs looking to raise capital for their business ideas. Peer-to-peer lending is similar to crowdfunding except that instead of raising funds from strangers, borrowers ask friends, family members, and even complete strangers for loans.

5) Smart Contracts:

Smart contracts are self-executing agreements that automatically enforce terms without requiring any outside intervention. They allow users to transfer value quickly, reliably, and at a minimal cost. These smart contracts have been developed to make peer-to-peer lending possible. Instead, having to go through an intermediary, the borrower directly transfers money to the investor.

6) Mobile Apps:

Mobile apps are very useful tools because they provide instant access to information anywhere and anytime. In fact, mobile apps are so powerful that many banks are now moving away from desktop banking towards mobile apps. Fintech startups are using mobile apps to offer financial services such as credit cards, savings accounts, and insurance policies.

7) Online Banking:

Online banking allows consumers to manage their finances online. It also provides real-time updates about their account balances and other important financial metrics. Consumers can pay bills, check their bank statements, and perform basic transactions like transferring money and depositing checks. Many people prefer online banking because they don’t have to leave their homes to conduct these activities

8) ATMs:

ATMs are convenient ways to exchange cash. However, most people do not know how to operate them properly and often end up losing money. To address this problem, fintech startups have created new types of ATMs that are more secure and easier to use. For instance, some ATMs can scan your fingerprint while others can read your palm vein patterns.

9) Virtual Reality & Augmented Reality:

Virtual reality and augmented reality are technologies that enhance our perception by simulating different environments. For example, virtual reality headsets let you step into a completely simulated world. Augmented reality technology overlays computer-generated images onto the physical world.

10) Internet Of Things :

Internet of things refers to the idea of connecting all kinds of devices all over a network. IoT devices range from refrigerators to vehicles. All these devices can communicate with each other and send/receive data via the internet. This communication happens either based on user interaction or based on automated processes.

11) Artificial Intelligence :

Artificial intelligence is a field of study focused on creating intelligent machines. As defined in Wikipedia, “An artificial neural network is a type of machine learning algorithm used when solving complex tasks.”

12) The Blockchain:

A blockchain is a distributed digital ledger that records transactions across several computers. A blockchain is decentralized, unlike traditional databases which rely on central authorities to record transactions. One of the biggest advantages of blockchains is their security. Because it’s decentralized, hackers can’t manipulate the system like they could if the database was stored in one place. Another benefit of blockchains is that they create transparency. This means that all transactions are publicly available for everyone to see.

13) Peer-To-Peer Lending:

Peer-to-peer lending is a form of crowdfunding where borrowers raise funds from friends, family members, and complete strangers. Loans are collateralized through P2P lending platforms, just like stocks. These loans are usually unsecured and unregulated.

14) Cryptocurrencies:

Cryptocurrency is an increasingly popular method of payment around the globe. Some cryptocurrencies are centralized, while others are decentralized. Most cryptocurrency transactions take place peer-to-peer without going through a financial institution. Since 2014, bitcoin has been the flagship currency of the crypto space.

15) Smart Contracts:

Smart contracts help automate agreements between parties. In simple terms, smart contracts are self-executing contracts written in code that automatically execute according to prewritten conditions.

How traditional financiers are starting to embrace fintech to finance real estate?

With this new age technology, it seems impossible to pay a vendor without PayPal or similar applications. The fintech revolution has empowered people to look for an insurance policy, new loan and new smartphone. It has also made the process of paying vendors easier than ever before.

In fact, we have seen how some companies have started to use Bitcoin as a way to pay vendors instead of using credit cards.

For instance, BitPay has partnered with GoFundMe to allow donors to donate directly to the cause they want to support with cryptocurrency. And Coinbase allows users to buy and sell Bitcoin through its app.

This trend will only increase as time goes by because there are more and more ways to make payments online. For example, Square Cash allows you to buy gift cards with your phone.

There are many reasons why traditional lenders are now looking at fintech startups. Here are three of them:

1) Lower costs

Traditional banks charge high fees for processing checks. They also require customers to be physically present during the transaction. Fintech startups don’t have any of those restrictions. They are able to offer lower rates and better service.

2) Better customer experience

Fintech startups are able to provide better customer experiences. They know exactly what their customers need, so they can customize their services accordingly. Traditional lenders often struggle when it comes to providing personalized customer experiences.

3) More competition

More competition is always good for consumers. When there are more options, it means that prices go down. That’s why fintech startups are becoming more attractive to traditional lenders.

It’s important to note that these startups aren’t trying to replace traditional banking. Instead, they are simply offering different products and services. So far, most fintech startups haven’t had much success. However, that doesn’t mean that they won’t succeed in the future. As long as the market demands something different, fintech startups will continue to grow.

To learn more about how blockchain technology could change the mortgage industry, check out our article here.

What does the future hold for the mortgage industry?

Blockchain technology is changing the mortgage industry in a number of ways. This includes everything from how loans are originated to how they are funded. We’ll walk you through each step of the process.

Step 1: Origination

As we mentioned earlier, blockchain technology makes it possible for borrowers to create digital identities on the Ethereum network these identities can then be used to access various financial instruments such as refinancing loans. If you’re thinking that this sounds like a lot of work, you’d be right. But thanks to smart contracts, all the paperwork needed to get a loan is automated. Smart contracts are computer programs that automatically execute once certain conditions are met. In other words, they are self-executing agreements.

The borrower creates a digital identity by signing up for one of the many decentralized lending platforms available today. Once signed up, the borrower can apply for a loan.

Once the application is approved, the lender transfers funds into the borrower’s account. The money is deposited into the borrower’s wallet and the borrower can spend it however she chooses.

Step 2: Funding

When a borrower wants to fund her loan using cryptocurrencies, she signs up for an exchange like Coinbase or Changelly. Then, she exchanges her coins for fiat currency. She uses this money to pay back her loan.

Step 3: Repayment

After the borrower repays her loan, she sends the lender the equivalent amount of crypto. At this point, the lender converts the crypto into fiat currency. He then deposits the fiat into his bank account.

In some cases, the lender might choose to keep the crypto instead of converting it into fiat. In either case, the lender receives the same amount of cash.

This entire process takes place without the involvement of a third party. It happens automatically via smart contracts. Most fintech startups don’t charge any fees to users. Instead, they generate revenue through advertising. For example, if a user searches for “best cryptocurrency wallets,” the startup will show ads related to those topics.

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Next Steps

As a specialist mortgage broker, we try to align with recent technologies while providing the right solution. We know that it is hard for many consumers to upgrade themselves with the fintech website and applications, our team of mortgage brokers tries to help people to find the right mortgage lender with a suitable mortgage deal. We also have a blog where we write articles about the latest trends for different types of mortgages in the mortgage industry. If you want to read more about the topic.

by Rohma Charlotte

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