Technology and the Democratization of Lending
NO TECHNOLOGY
| ANCIENT GREECE AND ANCIENT ROME | PAWNBROKERS One of the oldest money lending practices and a form of secured lending with items held as collateral keeping risk down for the lender. |
| MIDDLE AGES | THE MERCHANT OF VENICE Christians were forbidden from lending money with interest while Jews could lend with interest to non-Jews. Traders in Venice at this time had access to money lending services from Jewish lenders. |
| ‘BANCA’ | THE BENCHES WHERE MONEY LENDERS DID THEIR BUSINESS FROM, GIVING RISE TO THE WORD ‘BANK.’ WHEN A LENDER CEASED TRADING HE WOULD SMASH HIS BENCH – ‘BANCA RUPTA,’ HENCE ‘BANKRUPT’ |
| MIDDLE AGES THROUGH 1800s | INDENTURED LOANS The rich lent to those without means and in return the borrower worked off their debt by working on the lender’s estate. |
| 18TH CENTURY | ROTHSCHILD AND INTERNATIONAL BANKING Mayer Amschel Rothschild ‘invented’ international banking when he placed his sons in five European cities, creating a network for transferring money. Within a century, the Rothschilds were among the wealthiest families in the world. The fixing of the daily gold price took place at Rothschild Bank offices for 85 years (1919-2004). Proceedings were paused by participants raising a small Union Jack flag |
| LATE 18th CENTURY | BUILDING SOCIETIES Building societies first began in Birmingham in the UK in taverns and coffee houses. Ketley’s Building Society was founded in 1775 by the landlord of an inn. Monthly member subscriptions financed the building of member houses. |
| EARLY 1800s | A NEW ERA IN LENDING The Philadelphia Savings Fund Society was started so that average Americans could get access to loans and a means of saving. |
| 1932 | MORTGAGE FINANCE US congress created the Federal Home Loan Bank system to support residential mortgage lending by local financial institutions, ushering in a new era of mortgage financing. |
THE BEGINNING OF TECHNOLOGY
| 1950s – 70s | CREDIT CARDS AND COMPUTERIZATION |
| 1950 | Businessman Frank McNamara paid a restaurant bill with a small cardboard card, known today as a Diners Club® Card. |
| 1958 | Bank of America launched the BankAmericard, later to become Visa, in Fresno, California where 45% of the residents were its customers. A card was sent to 60,000 residents and so the bank was able to convince merchants to accept it. |
| 1966 | Barclaycard was the UK’s first credit card. |
| 1973 | In 1973 Dee Hock, CEO of Visa computerized the credit card system reducing transaction time to less than a minute. |
From early beginnings, the credit card goes on to become a popular method of payment. Before computerization, payment was slow and manual with phone calls between merchants, banks and credit card issuers to check credit balances, and lists of stolen card numbers to check against.
| 1959 | DATA IN CREDIT DECISIONS Lenders first start using FICO scores to make informed credit decisions. |
| 1961 | The reverse mortgage is born. The very first is written to Nellie Young in Portland, Maine by Nelson Haynes of Deering Savings & Loan to help the widowed wife of his high school football coach stay in her home after losing her husband. |
| 1970 | The Federal Home Loan Mortgage Corporation (known as Freddie Mac) is chartered by Congress, creating the secondary market for conventional home loans. |
| 1980s & 90s | INTERNET AND E-COMMERCE Opportunities grow for online lending specialists |
| 1985 | Detroit-based mortgage lender Quicken Loans launches with much of the application and review process conducted online. In the first five months of 2015 it lent out $24.3 billion of the application and review process conducted online. |
| 1999 | First Internet Bank pioneered online-only banking, offering home mortgage loans and banking services. |
SOPHISTICATED TECHNOLOGY
| 1990s | CLOUD; ANALYTICS; DECISIONING; BUSINESS PROCESS MANAGEMENT; BEHAVIOURAL ANALYTICS Companies start focusing more on processes – compared to functions and procedures – to maximise productivity, looking at chains of events and modelling cross-functional activities. |
| 1955 | In the US, the Federal National Mortgage Association (known as Fannie Mae) and Freddie Mac recommended FICO scores for evaluating mortgage loans. |
| 1997 | Predictive Model Markup Language (PMML) provides a standard language for predictive models. Predictive analytics develops as a risk mitigation tool. |
| EARLY 21st CENTURY | MARKETPLACE LENDING; PEER-TO-PEER |
| 2005 | Zopa begins offering peer-to-peer loans in the UK. Since 2005 Zopa has lent over £1.45 billion to UK consumers and identifies the top three loan reasons as car, home improvements and paying off credit cards. |
| 2006 | Prosper kicked off the modern peer-to-peer lending industry in the US, followed by Lending Club and other lending platforms soon after. |
| 2007 – 08 | FINANCIAL CRISIS From January 2008 to April 2011, the FDIC closed 356 banks that failed to manage the risks building up in their commercial and residential mortgage exposures. |
| 2007 | THE DIGITAL AGE The first generation iPhone was released. Mobile banking, shopping and payments later gain popularity with the dominance of smart phones. |
| 2010 | LendingTree survey reveals 21% of US homeowners shopped online first for mortgage rates. |
| 2015 | Lenders compete to meet customer expectations of digital services. In 2015, BBVA saw an increase in consumer loans through digital channels with mobile users up 45%. |
| 2016 | The industry is rocked as Lending Club reveals a violation of the company’s business practice and the resignation of its CEO. Commentators call into question the future of the industry. |
“Throughout history, the basic premise behind lending and the extension of credit hasn’t changed, however, the way lending happens has changed fundamentally. This change will only continue, driven by two fundamental factors – the progression of technology and the need for innovation to meet evolving customer expectations. Customers expect rapid response times and a hassle-free experience. Institutions that embrace the possibilities brought about by the internet, cloud, predictive analytics and future innovations that haven’t even been thought of yet, stand to benefit.”
Paul Thomas, Managing Director, Provenir
A Geek’s Guide to Machine Learning and Risk Analytics and Decisioning
References:
- https://www.thecalculatorsite.com/articles/finance/history-of-loans.php
- https://www.jewishhistory. org/the-rothschilds/
- https://en.wikipedia.org/wiki/FICO
- https://www.forbes.com/sites/scottbeyer/2016/01/15/the-future-of-mortgage-lending-could-be-online/#39b640ef4bea
- https://www.dinersclubus. com/home/about/dinersclub/story
- httpd://priceonomics.com/how-credit-cards-tax-america/
- https://www.fico.com/en/about-us
- https://www.directlendingsolutions.com/history_of_lending.htm
- https://www.zopa.com/about#press
- https://www.prosper.com/plp/about/
- https://www.finextra.com/news/fullstory.aspx?newsitemid=28421&utm_medium=NewsFlash&utm_source=2016-2-
- https://www.lendingtree.com/2010/12/consumers-comparison-shop-for-everything-except-their-mortgage/
- https://en.wikipedia.org/wiki/Business_process_modeling