With the rise of private lending comes an increase in competition, from new and traditional lenders. Banks are grappling with the huge increase in private lending, and many of them are entering the direct lending space so that they can establish themselves in the private market too. To compete in this space, they're embracing technology, forming partnerships with fintech firms and improving their customer experience.
Technology is playing a pivotal role in lowering the barriers to entry for new private lenders, and revolutionizing how private lenders operate, enabling them to reach borrowers more efficiently and with greater precision. Embracing technology is one of the first steps to creating a lending business that will be agile enough to keep up with the pace of evolution in today's lending climate.
Private lenders disrupted the monopoly of traditional banks and the private lending market has since seen a remarkable rise, reaching $1.5 trillion in assets under management globally at the start of 2024. In the past five years, the number of private lenders in the U.S. has surged by 20-30%, with more than 5,000 lenders originating mortgages in 2023.
Artificial intelligence (AI) and machine learning are being used for credit scoring, which allows for faster and more accurate assessments of borrower risk, and enables lenders to make more informed decisions.
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