3 Ways Technology Is Working to Prevent Another Credit Crisis
In the years leading up to the 2007 to 2009 financial crisis, lenders were providing loans to people who had virtually no chance of being able to pay the balance due every month. There are many places to put the blame, including the consumers who provided false information, the banks who failed to verify information, the loan officers who did not do their due diligence and the financial industry itself. Now, technology is working to prevent another credit crisis thanks to the development of robust software.
Ensuring That Regulatory Deadlines Are Met
Many rules related to credit are implemented at the federal level. It is well-known that the federal government often moves at a snail’s pace. Technology can be used in order to ensure that deadlines around the implementation of federal regulations are met. The software can also be used for tracking the implementation of rules at credit unions, small banks, and other lending institutions.
The software can now be used at the level of the community bank in order to evaluate who is a risk for defaulting on a loan. By implementing this risk evaluation at the point of application, creditors and banks can avoid the high rate of defaults that occurred during the 2007 to 2009 financial crisis. There are fewer risks in lending now because the software is set up to verify the data provided by the prospective borrower. CECL software can easily evaluate risk, though there is still a need for people to look over the qualitative factors.
Acceptance of Blockchain
Part of the credit crisis involved packaging subprime loans and selling them off to speculators. Those packages changed hands countless times. Now, centralized banks are turning toward blockchain in order to track transactions. The software allows blockchain transactions to be handled as efficiently as possible while still maintaining the integrity of the data and the security of the transaction. This also reduces risk and wild swings in the marketplace. Banks can also track their data better when they use blockchain. This will make the auditing and compliance processes easier to manage.
Powerful software can compare a loan applicant’s data with verifiable information across the entire USA in a matter of seconds. This facilitates the process and weeds out prospective buyers who are likely to default. The software should prove to be a big help in avoiding another credit crisis in the future.
Interested in more articles about technology? Check out this other article about how fintech will change in the next decade!