Is online lending damaging financial wellness?
The BPNL space has skyrocketed in the past 18 months, largely in line with the rise in online spending. But now that numerous online shops are offering the service at the point of sale and companies like Apple and PayPal have jumped on the bandwagon, is another credit debt boom looming? We spoke to Amit Dua at SunTec Business Solutions to find out more.
Q: What are the main reasons behind the online lending revolution in fintech?
There are several factors driving the proliferation of fintech credit. First, consumer behavior has changed dramatically in recent years. People not only meet virtually, but also spend money online – and borrow money. Digital lending has accelerated rapidly with the tremendous technological developments over the past 15 years such as artificial intelligence, big data, the introduction of 4G, and the advent and advancement of the smartphone.
We are now a mobile-first world where customers can bank on the go. Access to personal loans, mortgages and automatable financing is possible at the push of a button – anytime and anywhere. If this happens in a regulatory environment that is very favorable to promoting online lending, it is clear that the fintech digital lending revolution will continue. It is a transformation that will continue to advance, especially in this “value creation environment” in which we live and work. We also need to consider the impact that changing operating models of the world’s leading fintech providers have had. The innovation and simplification of their functionality has led the entire financial services industry to digitize faster than they may have wanted or planned.
Q: Has the simplicity of online lending changed the lending culture?
Completely. The digitization of consumer and corporate credit offers a significant area of growth for both traditional and challenger banks and fintech providers. As online lending has become more accessible, convenient, and available, fintechs are becoming increasingly important. The regulatory environment remains ripe and prone to disruption – and fintechs have benefited from it and offered a wide range of payment-as-a-service offerings to solve traditionally unmet customer problems. With the option of starting and completing a loan application from start to finish on your mobile device [even as you stand at the point of purchase]Why do you have to go to your bank branch to arrange a line of credit or a loan agreement? Borrowing money from some financial service providers is now as easy as booking a vacation online.
Q: How is this wave affecting incumbent banks?
The digital lending tsunami demonstrated that traditional banks need to simplify and streamline the consumer borrowing process – and quickly. There is no longer a single approach to lending. Many banks have not changed their basic lending processes in decades, so they are often too long, too complex and cannot be fully processed online. As a result, banks inadvertently presented themselves as an expensive, exclusive, and slow option for lending. Unmet needs lead to a withdrawal, resulting in a loss of income for the banks.
Banks need to create options that meet the ever-changing needs of consumers, especially Millennials and Gen-Zs. They need to improve their agility, responsiveness, and determination to not only respond to customer needs but to predict them. Many customers may never banking in person again, which means banks need a comprehensive solution to provide credit and arrange credit in low risk, low cost, and personalized ways to meet their clients’ unique needs.
Q: What can banks do to solve the problem?
They just have to step up their game. The technological spread and acceleration of the digital transformation that the pandemic created presents banks with an unmatched opportunity that they must seize.
It is no longer a matter of waiting for the customer to approach the bank and look for credit options for their specific circumstances. Banks must now move to a fully customer-centric model in which they develop credit and credit options for a wide range of customers with very specific, individual needs before the customer himself realizes what he needs. Today’s customer is well-versed and proactively searches for offers himself. They actually don’t like it when someone contacts them.
Fintechs first got a foot in the door by enabling end-to-end loan agreements on a mobile device. But banks, with their proven legacy of customer trust and loyalty, can turn this tide. The pandemic has changed the way consumers interact, do business, and interact with financial companies. Digital is now standard, not a “nice-to-have”. However, there is increased variance in the market. Some banks are highly digital and offer sophisticated services and products tailored for a digital environment and a real online customer, while others require real improvement. All banks need to go digital and need to rethink their entire organizational systems, processes, data and people – including how they ensure that online lending meets the needs of their digital native customers.
Q: Is increased and possibly less regulated online lending good for the economy or problematic?
On the one hand, increased regulation can be a good opportunity for business because, as with all types of services and services, it is essential for a prosperous and prosperous business environment. Regarding online lending in particular, regulation is an important tool in protecting both consumers and loan providers. But there is a fine line between necessary and adequate regulation and the kind of laws that stifle innovation and prevent growth.
Digital lending can provide an inexpensive and convenient solution that is win-win for both the consumer and the financial institution. An unregulated credit ecosystem is a recipe for disaster. We need regulation that is in tune with the credit environment, as the right level of regulation serves the best interests of the industry for all stakeholders.
Q: What new online lending technologies are disrupting the market?
While blockchain has been associated with Bitcoin and other cryptocurrencies, it is relatively new to digital lending. But the possible changes it can bring are profound. Not only does it offer top-notch security – which is essential for online money transfers and other credit processes like collecting auditable data, entering into and securing smart contracts – it enables the bank and customer to record their transactions in an easy and verifiable manner. By building a credit platform on blockchain technology, contracts and transactions become final. A report from the World Economic Forum says that by 2025, 10% of global GDP will be stored on blockchain. It is definitely a technology that will stay and only grow in importance.
Digital signature technology has also accelerated and while not new, it has been innovated extremely quickly in the past 12 months due to Covid-19. Know Your Customer Digitally (e-KYC) has grown rapidly, reducing the time from starting a loan application to receiving approval and funds in your bank. By digitizing the entire verification process, many online lenders have been able to meet the needs of more customers much faster and more seamlessly. Gone are the days when a representative from your bank had to meet you in person to fill out the KYC documentation. Everything can now be completed digitally.
Although it is not a new technology, the cloud also presents a great opportunity for banks in the credit space. Cloud technology enables banks to innovate faster and more cost-effectively. It also enables them to work fast, and that’s what today’s digital customer wants; Speed, accessibility and simplicity in lending.
The opportunity for banks is to leverage the flexibility, scalability, high performance and security of the cloud to process large amounts of transactional data and functions and turn them into added value for their customers. This builds confidence in their ability to keep up with agile, responsive, and adaptable fintech players. In that case, it can help reduce loan application decisions from weeks to days, save money, drive higher quality decisions based on the amount of data that cloud technology can facilitate, and ultimately increase revenue.
The automation of machine learning and big data are also enabling lenders to make not only faster, but more informed decisions. Automation can save the provider a lot of internal resources and overhead costs while ensuring a hyper-personalized customer experience for the applicant. Speed, responsiveness, and agility are just a few of the criteria for automating machine learning and big data.
Q: Is the online lending boom purely customer-driven and will it become the “norm” in the foreseeable future?
It is not just driven by the customer. For example, a mature regulatory environment, where laws stimulate a strong digital landscape for consumer borrowing, has also fueled the digital lending boom.
There are also the benefits digital lending brings to financial institutions – whether it’s a traditional bank or a new fintech player. In addition to the cost savings that digital lending can bring to institutions, it can also generate revenue growth that comes from increased pricing power and the ability to meet the needs of a larger percentage of customers.
About: Amit Dua is President and Global Head – Client Facing Group at SunTec Business Solutions. Based in London, he heads the functions of sales, business development, customer loyalty, alliances and industry solutions for SunTec worldwide