As the real estate industry continues to evolve, so too does the world of private real estate lending. From new technologies to emerging trends, there are a number of factors that are shaping the future of this industry. Whether you’re an investor or a borrower, it’s important to stay up-to-date on the latest developments in order to make informed decisions. In this guide, we’ll explore some of the key trends and technologies that are driving the future of private real estate lending.

Growing popularity of crowdfunding platforms for real estate investing

Crowdfunding platforms have become increasingly popular in recent years as a way for investors to pool their resources and invest in real estate projects. These platforms allow investors to access a wider range of investment opportunities than they might be able to on their own, and they also offer greater transparency and control over the investment process. As the popularity of crowdfunding continues to grow, we can expect to see more real estate lending platforms incorporating this model into their offerings. This could lead to increased competition and innovation in the private real estate lending space, as well as greater access to funding for real estate developers and investors.

One of the major benefits of crowdfunding platforms is that they democratize access to real estate investing. Previously, real estate investing was largely limited to high net worth individuals or institutional investors, as these were the only groups that had access to large-scale real estate deals. However, crowdfunding platforms have opened up the world of real estate investing to a much broader range of individuals, including those with limited resources. This has the potential to help address wealth inequality by providing more people with the opportunity to build wealth through real estate investing. Additionally, crowdfunding platforms can help to create more diverse investment portfolios, as investors are able to choose from a wider range of projects and investments. As a result, real estate crowdfunding has the potential to transform the way that people invest in real estate and create new opportunities for individuals and communities alike.

Greater focus on sustainability and green building practices

As the world becomes more environmentally conscious, we can expect to see a greater focus on sustainability and green building practices in the private real estate lending industry. This could include lending criteria that prioritize environmentally friendly projects, as well as the development of new technologies and materials that reduce the environmental impact of real estate development. Investors and developers who prioritize sustainability and green building practices may also be able to access lower interest rates or other incentives from lenders. Overall, the trend towards sustainability is likely to have a significant impact on the private real estate lending industry in the coming years.

In addition to the environmental benefits of sustainable real estate development, there are also potential financial benefits for investors and developers. For example, sustainable buildings may be more energy-efficient, which can result in lower operating costs and higher long-term profitability. Additionally, sustainable buildings may be more resilient to natural disasters and other disruptions, which can help to reduce risk for investors and lenders. As a result, we can expect to see a growing interest in sustainable real estate projects from both investors and lenders, as well as an increasing focus on sustainability in the due diligence process for real estate lending. This trend towards sustainability is likely to continue to gain momentum as more investors and lenders recognize the potential financial benefits of green building practices, and as the public becomes more aware of the importance of sustainability and environmental responsibility.

Continued growth of the rental market and alternative lending options

In addition to sustainability, the private real estate lending industry is also seeing continued growth in the rental market and alternative lending options. With more people choosing to rent rather than buy, there is a growing demand for rental properties, which presents opportunities for private lenders to finance these projects. Additionally, alternative lending options such as crowdfunding and peer-to-peer lending are becoming more popular, providing borrowers with more options outside of traditional banks. As these trends continue to evolve, private real estate lenders will need to adapt and innovate to stay competitive in the market.

However, the adoption of sustainable real estate development is not without its challenges. One of the primary challenges is the higher upfront costs associated with implementing sustainable building practices and technologies. For example, solar panels, energy-efficient HVAC systems, and other green building features can be more expensive to install than traditional systems. Additionally, there may be a lack of standardization in sustainability certifications and building codes, which can lead to confusion and additional costs for developers. Another challenge is the potential for greenwashing, where developers may claim to prioritize sustainability without actually implementing meaningful green building practices. To address these challenges, there is a need for increased collaboration between developers, investors, lenders, and policymakers to establish clear standards and incentives for sustainable real estate development. With the right policies and incentives in place, the private real estate lending industry has the potential to play a key role in driving the transition to a more sustainable and environmentally responsible future.

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Fintech solutions are transforming our economy in ways we are just beginning to understand, and the industry is likely to continue its rise in the coming years. Here’s a look at the top industries that fintech will affect in 2023, from banking and insurance to healthcare and retail.

Small Businesses

Fintech can help small businesses by making operations faster and reducing costs. 

By using online payment services and automated banking, small businesses can more effectively manage their finances and streamline payment processes. Automation can also help small businesses keep track of expenses and reduce administrative costs, allowing them to focus on growing their business. Additionally, cloud-based fintech solutions offer secure storage of data and improved customer service, making it easier for small businesses to offer a seamless experience.

Small businesses can also take advantage of tailored fintech solutions such as invoice finance, which allows them to access financing via online platforms. This type of funding can provide businesses with the capital they need to hire additional staff, expand their operations, and invest in new technologies. Furthermore, businesses can use AI-based accounting software to sort and categorize expenses and plan cash flow with greater accuracy. Overall, small business owners stand to benefit from the wider range of streamlined, cost-efficient services that fintech has to offer.

Insurance Industry

New technologies have the potential to shift how companies assess risk for insurance products, leading to better customer experience when navigating their policies.

For the insurance industry, fintech can help companies process customer claims more efficiently. As technology advances, new solutions can be developed to automate elements of customer service and risk management. This could lead to faster processing times and better customer experiences, while also reducing operational costs. For customers, this could mean complex policies being easier to understand and access as they are presented in a more user-friendly way.

Fintech solutions can also open up new opportunities for the insurance industry such as full-stack digital platforms that offer tailored experiences for customers and process claims quickly and accurately. With the help of fintech, companies can take advantage of innovative data analytics tools to gain insights into customer behavior and use this data to improve product design. The possibilities are endless and we expect that 2023 will be a pivotal year where fintech will lead to significant changes in the insurance sector.

Investment markets

Automated trading algorithms and AI-powered decision making is set to revolutionize the way investments are made in the coming years, allowing for faster and more accurate trading decisions.

Automated Trading Algorithms (ATAs) are software programs that use complex mathematical models to analyze and make investment decisions with minimal human intervention. They have the potential to open up opportunities for investors previously only available to professional traders. AI-Powered decision making can further help investors optimize trading decisions by recognizing patterns in large data sets, predicting market trends and minimizing risk. As more of these technologies become readily available, they will revolutionize the way investment decisions are made in 2023.

As investments become easier and more efficient to make, finance giant institutions will no longer have exclusive access to the best decision making tools available. ATAs and AI-Powered decision making can give retail investors a level playing field with the big market players, allowing them to leverage their capital more effectively. Companies that provide fintech solutions are already starting to provide these services at an impressive level, empowering more individuals to become active traders and diversifying the investment industries as a result. In 2023, these technologies will be seamlessly integrated into our daily lives with an even wider array of investment opportunities becoming available for everyone.

Wealth management

Robo-advisors are starting to shape wealth management, providing automated investment advice based on user preferences that take into account risks as well as expected returns from certain portfolios.

Robo-advisors are increasingly used by both institutional investors and individual consumers looking to diversify their investments or manage their finances in an efficient way. Their algorithms will allow for greater automation of portfolio management decisions and utilization of big data analytics that can help boost returns by tracking performance more closely. Due to their effectiveness, cost efficiency and convenience, robo-advisors are likely to offer the biggest impact on wealth management in 2023.

Banks and other financial institutions are looking to robo-advisors as a key part of their overall wealth management strategy, and many have already invested heavily in acquisition and development of these technologies. More fintech startups have also recently entered the space, creating competition for legacy wealth management firms. This competition is likely to continue driving innovation and greater transparency in this field, with artificial intelligence (AI) playing an increasingly important role in the decision-making process. As the financial industry continues to evolve over the next five years, we expect wealthy investors to turn to robo-advisors more frequently in order to optimize their investments.

Banking

Banks are some of the earliest adopters of fintech solutions, and it is likely that they will be making further use of the technology in 2023. From improved customer service to faster payments and greater security, fintech can have a positive impact on banks’ operations. Banks are already launching robo-advisors, as well as introducing consumer-facing apps with useful features like budget tracking and financial advice. Fintech can also help banks reduce their costs, cut down customer wait times, and offer customers more personalized services.

It’s also likely that banks will be using fintech to innovate in areas like payments and lending. Banks can take advantage of technological advances like artificial intelligence (AI) and machine learning algorithms to improve their services, keep up with the newest regulations, create more accurate fraud detection systems, and streamline intricate processes. Fintech will also help banks become more transparent with customers and provide shorter processing times for various transactions.  Ultimately, these advancements in technology will make banking experiences more connected and efficient for customers.

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Not two banks are created equal, and in terms of a bank’s digital ambitions, these are very different depending on size, region, and even products. Banks with more aggressive digital goals have managed to digitize personal loan applications that can now be submitted with a few swipes on a mobile device and time to cash can be as short as the same day. Large portions of mortgage lending, even with all the regulatory constraints, has been digitized by many banks, financial institutions, and private money lenders; many others are still trying to get there just to be able to compete.

The reasons for pursuing a lending digital revolution vary almost on a case-by-case basis but there are clear benefits to doing so, including revenue loss to competitors that offer shorter approval and disbursement times, and also increased win rates significantly when compared to traditional lending processes.

In one study by McKinsey&Company on how digital credit is changing banks, it was reported that one large European bank increased win rates by a third and average margins by over 50 percent as a result of slashing its time to yes on small and medium enterprises lending from 20 days to less than ten minutes.

When looking at banks and financial institutions that have successfully digitized their lending operations, there are some factors that are similar between them. In this article we explore these factors.

Enhancing the Customer Journey is Key

Whether for a business loan, a mortgage, or personal loan, having a clear end-to-end understanding of the customer journey is crucial when designing a digital experience. Attempting to improve the credit process by changing only portions of the lending process at a time, typically leads to disappointing results and creates customer confusion and even frustration.

Creating a new digital experience in lending is no different than creating any other product that relies on technology, and this includes focusing the scope of a first wave of the lending transformation on a minimum viable product (MVP). The MVP should include a substantial scope that delivers real value, generates momentum, and creates excitement within the organization and customers. However, remember that shooting for fancy or extensive features at MVP is not wise and leads to extended implementation timelines, going over budget, and ultimately frustrated executives and process owners, and also clients.

Keep borrowers engaged

Let’s put ourselves in the shoes of a borrower for a minute; would you like not hearing from the bank in days after applying for a business loan? Or how about not knowing if I’m missing any documents until it’s too late? In general, customers like clarity and it is the lender’s responsibility keeping them engaged throughout the lending process.

Focusing on touch points and interactions that make the customer feel engaged, less anxious, and even excited about the loan application process is crucial. It is well known by tech giants and now in banking that customers more than ever are making choices based on the quality of their digital experience. Lending processes vary by product type, market, industry, and many other factors but there are common factors that improve customer experience in lending, such as:

• Ongoing notifications on where a customer stands in the approval processes
• Providing easy ways to submit documents
• Ability to use multiple channels of communication
• Provide options and even recommendations for other products

Consider Partnering with Fintech Companies that Specialize in Lending

In McKinsey’s Future of Risk Management Survey, 85% of participants viewed legacy IT infrastructure as the main challenge in digitization. By establishing partnerships with fintech companies, banks and other lenders reduce the need for IT resources to develop, operate, and maintain complex lending solutions.  Some banks, credit unions, and alternative lenders have become IT shops in order to create the perfect solution to support their lending products; however this has been proven costly and ineffective. 

Fintech partners offer great value to banks and other lending institutions, including:

• Packaged end-to-end lending platforms that can rapidly adapt
• Aggregate experience from working with many other lenders
• Offering new approaches to old problems in lending
• Advanced automations through the use of connectors / APIs
• Ongoing feature and functionality updates

Prioritize the Culture and Adoption

The issue of resisting change is not unique to lending or banks; it is a byproduct of human nature. We tend to distrust a process, method, or technology that we have not seen in operation while we favor the ones that we know, even if understandably inefficient and antiquated. This is why it is essential for leadership to take charge and establish the foundation for a successful adoption of new technologies that will change the way people work and interact with customers. When justifying why change should happen, it is important for leaders to demonstrate that there is an evolution, and provide context for the need to evolve, all with the aim to provide context to employees.

Successful change and adoption of a new technology requires developing a context-sensitive approach, and under those conditions employees’ behaviors embrace the change. In addition, adoption comes from understanding the impact on the day-to-day and of the technology itself. Including staff from all levels in working sessions and training is necessary in order to reach high levels of adoption and even excitement within the teams.

In the end, one thing is certain: there are many challenges in digital-lending transformation and the journey to digital revolution is long and uncertain. Success is achieved when clients receive speedy credit decisions, when borrowers get cash disbursements much sooner, and when your teams spend 50% less time on decision making and more time on quality risk decisions.

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