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– Artificial intelligence Lending –
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Lending (also known as “financing”) in its most general sense is the temporary giving of money or property to another person with the expectation that it will be repaid. In a business and financial context, lending includes many different types of commercial loans.
Lending and borrowing are the same transactions from the two viewpoints.
As a people, we assume that lending is forever going to be part and parcel of our economic system. With the clever adoption of new technologies and all the good that the likes of AI could bring, lending could very well remain a sound, consistent aspect of the global economic machine. But how will new technologies impact the shape of lending in more specific terms?
These industry insiders have a clear view of the state of lending, which gives them an advantage when predicting AI’s role in the future of lending.
Lending is a massive business in the United States which directly and indirectly touches almost all parts of the economy. With tens of millions of Americans holding loans worth trillions of dollars, any technology that can make even a small improvement in a company’s returns on the loans they hold, or that can improve their share of the market, would be worth a significant amount of money.
That is why both established banks and startups in the field are constantly looking for ways to innovate – and artificial intelligence might allow for just that. In fact, our AI Opportunity Landscape research shows that approximately 15% of the venture funding raised for AI vendors in the banking industry is for lending solutions.
At its core, lending is a big data problem, making it a business naturally suited for machine learning. Part of the value of a loan is tied to the creditworthiness of the individual or business that took out the loan. The more data you have about an individual borrower (and how similar individuals have paid back debts in the past), the better you can assess their creditworthiness.
The value of a loan is thus tied to assessments of the value of the collateral (car, home, business, artwork, etc…), the likely level of future inflation, and predictions about overall economic growth. The promise of AI is that theoretically it can analyze all of these data sources together to create a coherent decision.