So what does the future have in store for companies like Lendingtree and E-loan? Despite the typical claims from skeptics that online financing will be a flash in the pan, the outlook of the industry is, in general, quite positive. A study conducted in 1999 by Forrester Research titled Credit at the Threshold found that online lending was on the brink of "hypergrowth." According to Forrester, the overall volume of Internet financial transactions will skyrocket by 2003:
...consumers will obtain some nine million loans and credit cards over the Internet, worth almost $167 billion. Mortgages will account for the largest dollar volume: $91.2 billion in 599,000 loans, almost 10% of original originations (up from 1.5% in 1999). (Orr 1)
If such figures can be realized then the Internet may very well solve lenders' greatest problem: the inability to break-even due to the labor-intensive yet competitive nature of mortgage lending in a brick and mortar environment.
Aside from home loans, Forrester also prognosticates a rise in the number of credit cards issued online to one out of every six. Online auto loans are also expected to follow the trend and student loans will soar to an astounding 25% (up from 0.1%).
American Banker, a daily trade publication, can also vouch for the seemingly endless potential of online lending. [It] estimates that in five years, online mortgage origination may account for 25% to 30% of all new home loans (Potwora 1). One private entrepreneur expects online mortgage applications to increase his business by 60%.
The recent bounds made by the online finance industry have been attributed to a multitude of factors. First and foremost, obviously, has been the tremendous rise in computer ownership and Internet access. Consequently, consumers' comfort with computers has been enjoying a very steady increase. Currently, one of the largest segments of online financiers' markets has been baby-boomers who have adjusted to computers. However, lenders are most optimistic about the rise of the next generation. Very soon there will be myriad of young adults who have grown up around this type of interface. It is these consumers that have online lenders most excited.
Yet another explanation for the growing trend to borrow online is a rise in consumers' knowledge of the field. Just as consumers are educating themselves about the stock market and managing their investments online, mortgage applicants are becoming savvy about the borrowing process (Potwora 1). Online lenders have responded to this increased awareness by offering such features as amortization schedules, payment calculators, and current interest rates on their websites.
Despite the positive growth forecast for online financiers, they still lack one important capability. At the moment, loans can be initiated and originated electronically but they can not, however, be closed on the net. But one company, Eastman Savings FCU, has teamed up with a computer banking services provider called Digital Insight to produce a pilot program that would metapmorphosize online finance. It will be called Axis Online Lending and will streamline the process of obtaining a loan online by creating a channel of information between banking networks and credit union networks.
The biggest departure from the past will be AXIS' ability to retain members' personal financial information when they begin to fill out applications online. At no time would a member have to enter any of his/her checking or savings account information. Their account status would automatically be linked to AXIS' internet banking. Moreover, AXIS will automatically detect non-members on their system and encourages them to become members by quickly sending them a follow-up call from member services.
AXIS' new features represent a large stride by online financiers but turning online mortgage leads into signed applications requires a high dose of user friendliness (Jepson 2). Yet that is precisely what Eastman Savings FCU thinks AXIS will be able to do without the aid of lending experts. In short, AXIS will further allow online lenders to cut costs yet maximize customer service. Soon, borrowers should be able to start and finish the borrowing process from their home without ever speaking to a loan officer.
The ability of online lending to increase profits made by lenders as well as decrease interest rates and fees paid by borrowers is truly remarkable and unprecedented. Moreover, new technologies on the horizon will only fortify the strong following that online lending is developing. Consequently, it seems quite likely that online finance's future will be a bountiful one.
Created byAnthony M. Hill