Alternative lending refers to a growing industry of digitally based lending platforms for different borrowing needs, including consumer, small and medium enterprise, student loans and mortgages. Within the last 10 years, this industry has emerged to become the subject of much discussion and speculation due to the technological innovations it uses to simplify and expand consumer access to capital, its stance on regulation, and the potential threat it presents to traditional financial institutions.

Alternative lending platforms provide an end-to-end loan experience through digital delivery, from application and origination to underwriting and servicing . Alternative lenders perform the credit underwriting process and approve or decline a loan application based on the borrower’s risk score in near real time, relying heavily on proprietary algorithms and the collection of different sources of data directly from the borrow er or third parties. The efficiency, scalability, reduced cost and digital capabilities provide clear differentiators to consumers when compared to a traditional bank, which could take multiple week s for processing a loan.

As the industry matures, there is greater skepticism regarding whether this lending model can withstand a down cycle, increased regulatory oversight, challenges with the credit underwriting practices, as well as the operational challenges associated with scalability (e. g . , internal controls, operational risk management and loan servicing ) . Also, since this industry hinges on everything digital, there are increasing concerns around cybersecurity and online fraud within the digital banking world.