If you have been looking at the finance industry in the last few years, you cannot have missed the term Fintech.
We are being told that disrupters and Robo-Advisors are improving and changing the market, giving consumers access to instant recommendations and advice. As more lenders start to implement technology, to make lending decisions, the debate increases around the suitability of advice and recommendations.
On a personal note, do you want a machine telling you what is best for you, or a human with years of experience?
For some sectors, the technology currently in use is better suited to the needs of that specific industry, than to others. If you want an algorithm to search loans on strict criteria, using precise data, you might think that is fine but what about for more nuanced areas of finance?
Take development finance, for example. When looking at the suitability of an application there are aspects that a computer programme cannot work with. These sorts of applications do not just take into account work history, income, dependent family members and fixed expenditure.
Underwriting development enquiries is more of an art, you have to look at the experience of a builder or developer, the location and condition of the site itself. Is the site sloping? Are there external issues that make it less attractive? Is there demand for the sort of unit being built in that location?
What about the wider economy? Are there issues on the way that might affect the ability for the client to repay? Brexit, for example, is looming. What impact might that have on the property market?
The borrower needs to take care, too. Unlike a standard loan where no contact with the lender is needed after the funds have been released, with construction finance the contact is regular, throughout the build.
With that in mind, borrowers must worry about more than just the cost of the loan, which is often the benchmark for standard finance. They need to consider how easy that lender will be to deal with, how quickly they can have the stage payments they need to complete build. How would a Robo-Advisor be able to do that?
That is not to say that technology will not improve to the point where it is possible, but for now, the human touch is as important as ever.
All this comes before we consider how issues during a build are dealt with. The best laid plans hit problems, in all industries. Construction is no different. Bad weather, supplier issues, contractors not turning up are all factors that can impact on the success of a project. Having a binary approach to lending in these circumstances will not work. It still needs a human to look at the issue and decide the best course of action to assist the client to a successful conclusion.
There is no point hoping the Fintech era will just blow over, it is here to stay. Brokers and lenders should not shy away from tech necessarily, rather, look at how they can best use it to help their clients and find the best development finance.