How Technology is Revolutionizing Personal Finance

By: Boris_Dzhingarov

Unquestionably, especially in the last few years, the financial services industry has changed beyond all recognition from the days of bank opening times and hire purchase. Essentially, today's financial market place – for consumers at least – revolves around credit and credit ratings.

Some people bask in the glow of a robust credit rating but these days even mentioning it can be a worrying issue for some; yet they may be unnecessarily concerned. Some finance companies can help when it comes to a less than perfect rating. Decisions are made on a case-by-case basis so a poor credit score need not be an impediment to, say, a loan.

All finance companies will not unreasonably do a credit check. Applicants though may worry that simply by asking about their status will result in a black mark on their record but this is less frequent than might be thought. Whenever an individual checks his or her rating the inquiry is considered to be 'soft', in that a credit status is checked but leaves no trace. Similarly, a business might use this method to promote their service or it could be used when a customer already has on on-going arrangement. It follows then that a less than perfect credit score need not mean a bar on future loans.

This is where companies like Clearway can help. They take other factors; income and outgoings, employment history and residential status into consideration when processing applications form those with a poor credit rating. Thus when a potential client makes an initial online application for bad credit finance, all the factors are considered. Thus, they will carry out a 'soft search', thus enabling the company to match your circumstances against a specific bad credit car finance product without further damaging your score. For people for whom, say, a new job depends upon having a reliable car, this approach is a godsend.

But it doesn't end there. Most people are well aware that a huge amount of personal information is out there in the ether, available for interested parties to review via data listings and the like which are available to buy. This is all perfectly legal and it has little effect on our lives. In short, lenders know much more about us than we think.

Take short-term loan providers, or payday lenders, as they are rather disparagingly known. They can offer pretty much instant decisions on loan or finance requests. In the old days this would require references and maybe even employer checks before a deal could be done. Now, it happens in minutes. This is because companies can research many different aspects of a person's life. Do they avoid using Direct debit, for example, or do they embrace the modern way? It all counts.

As most of such applications are made on line then it is easy for lenders to see the computer's IP address. From this, in the same way that cookies are applied, a background app can be placed on social media platforms which will help companies to build up a picture of potential customers. It is far reaching and is why such speedy decisions can be made. If you look at it from the lender's point of view, it makes sense. Wonga is one such company who are rumoured to use social media, they combine it with around 8,000 other data points.

By interacting with the world we all tacitly agree to have all this personal information floating about and it allows a company to make the right decision. Remember, there has been so much fuss about 'payday' lenders doing business with folk who patently can't afford to make repayments, you can't really blame them for making certain an individual is a good risk.

Recently, some car finance companies have started offering a new route to a car loan which is especially useful for those with a shaky credit history. It's simple: The borrower agrees to have a small, innocuous black box fitted to their car. When a monthly payment is due it bleeps when the car is in use to remind the owner. Once a payment is made, it stops. This a great idea because  the buyer knows that funds need to be available. The downside is that, should the borrower default, the car can be immobilised, thus protecting the lenders investment. Tough love perhaps but it would certainly be an incentive to stay on the programme.

As indicated at the beginning, the world of finance spins ever more quickly. Right now we are seeing a rise in peer-to-peer (P2P) lending. This is a fascinating new approach to the lending and borrowing of money. Essentially, it works like this: Borrowers and lenders are matched directly, usually via online auctions.

 Any deals arranged often comprise a conglomeration of small amounts from different lenders. Some P2P platforms slice, dice and package the loans; others allow lenders to pick them. In these days of low interest rates from the high street banks, lenders can earn much better rates of interest on their investment. The borrower gets a good deal too in that interest rates can often be very competitive.

Those worried (especially lenders) that this might be some sort of global scam or is based on very shaky foundations need not be concerned. The platforms that run these businesses have learned from the past mistakes of the financial industry and have safeguarded the process via a trade body for the industry. Although it has global reach, P2P is not yet widely known but in time it could even challenge more conventional methods of lending. It's not a free-for-all though; credit worthiness remains as important as ever but it does offer an alternative way forward for would-be borrowers concerned about their official rating.

It is amazing how the wide world of money has evolved in such a short space of time. It doesn't seem that long ago that we were marvelling (and worrying) about chip and pin machines. Now an increasing number of people are receiving and using contactless payment options built in the debit and credit cards. One swipe and you can pay up to £20 in this manner. However, following a surge in its use, the limit will increase to £30 from September 2015. More and more retail outlets and transport providers are installing readers.

In our busy world think how convenient that is. So much so in fact that the same technology could well appear on watches and key fobs, for example. One organisation is even looking at gloves with an integral chip! No more cold hands as you grope for change.

We all worry about our financial security and the safety of our personal history but the fact is that fraud is relatively small considering the size of the global financial market and, in the event, the financial institutions have established safeguards to ensure it is not the consumer that loses out. It is the price we pay for convenience. The good news though is that individuals with a bad credit history need not despair. For those willing to comply with the rules financial services remain readily available and will help to climb the credit ladder once again.

By Boris Dzhingarov

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