Online lending is loan origination done online rather than in-person.

Online lending is very different than traditional in-person lending. In the past, a prospective borrower would walk into a bank branch or meet with a loan officer to discuss a potential loan. The bank would collect financial records from the borrower and attempt to gauge the “character” of the borrower (i.e., honesty). Online lending is typically done through a web portal in which the borrower answers certain questions and agrees to certain data pulls. For instance, an applicant for a personal mortgage must agree to a “hard credit pull” in which the lender pulls their entire credit profile. Many online lenders now pay for other third-party data providers (like Yodlee) for additional consumer financial data. This data is then fed through a credit risk assessment algorithm to arrive at the loan decision. This can sometimes be done in a matter of minutes. Traditional bank lending can take days or even weeks. As banks move in this direction, there is less and less reliance on face-to-face interaction and more reliance on data analytics.