The BNPL space has exploded over the past 18 months, mostly in line with the increase in online spending. But now that many online stores offer point-of-sale service and companies like Apple and PayPal have jumped on the bandwagon, are we in danger of creating another credit debt boom? We spoke to Amit Dua of SunTec Business Solutions to find out more.
Q: What are the main drivers of the online fintech lending revolution?
Several factors are contributing to the proliferation of fintech loans. First, consumer behavior has changed dramatically in recent years. Not only do people virtually socialize, they also spend online – and borrow. Digital lending has accelerated rapidly with the vast technological developments of 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 world where customers can bank on the go. Access to personal loans, mortgages and automated financing is available at the touch of a button – anytime, anywhere. When this happens in a regulatory environment that is very supportive of online lending promotion, it’s clear that the digital lending fintech revolution is here to stay. It’s a transformation that will continue to snowball, especially in this “value-added” environment in which we live and work. We also need to consider the impact that the changing operating models of the world’s leading FinTech providers have had. Innovation and simplification of their functionality has driven the entire financial services industry to digitize faster than they either wanted or anticipated.
Q: Has the ease of online lending changed the culture of lending?
Completely. The digitization of the credit supply for consumers and businesses is an important area of growth for traditional and challenger banks and fintech providers. As online lending has become more accessible, convenient and available, fintechs are gaining momentum. The regulatory environment continues to be mature and open to disruption – and fintechs have been able to take advantage of this and offer a wide range of payment-as-a-service arrangements to address traditionally unhappy customer issues. With the ability now to start and complete an end-to-end loan application on your mobile device [even as you stand at the point of purchase], why do you have to go into your bank branch to get a credit facility or a loan agreement? Borrowing money from certain financial providers is now as easy as booking a vacation online.
Q: How is this wave affecting legacy banks?
The digital credit tsunami has proven that traditional banks need to simplify and streamline the process of consumer borrowing – and fast. There is no longer a one-size-fits-all approach to lending. Many banks have not changed their basic lending processes for decades, so they are often too long, too complex, and cannot be fully completed online. As a result, banks inadvertently presented themselves as an expensive, exclusive and slow lending option. Unmet needs lead to disengagement, which means lost revenue for banks.
Banks need to create options that meet the ever-changing needs of consumers, especially millennials and millennials. They need to improve their agility, responsiveness and determination to not only react to customer demands but to anticipate them. Many customers may never bank in person again, which means banks need a complete solution for providing credit and arranging loans in a low-risk, low-cost, and personalized way to meet the needs of the customer. unique needs of their customers.
Q: What can banks do to resolve the problem?
They simply need to step up their game. The proliferation of technology and accelerating digital transformation created by the pandemic presents an unparalleled opportunity for banks – an opportunity they must seize.
It is no longer a question of waiting for the customer to approach the bank and look for credit options suited to their particular situation. Banks must now shift to a fully customer-centric model in which they develop credit and lending options for a wide range of customers with very specific and unique needs before the customer himself realizes what he needs. need. Today’s customer is savvy and proactively researches online deals themselves. In fact, they don’t like someone to contact them.
Fintechs first stepped in the door by enabling end-to-end loan completion agreements on a mobile device. But banks, with their well-established legacy of customer trust and loyalty, can reverse this trend. The pandemic has changed the way consumers interact, deal and engage with financial companies. Digital is now the norm, not a “good to have”. However, there is increased variance in the market. Some banks are very digital and offer sophisticated products and services tailored to a digital environment and a truly “online” customer, while others need real improvement. All banks need to go digital and need to reconsider all of their organizational systems, processes, data and people, including how they ensure that online lending meets the needs of their digital native customers.
Q: Are the increase and decrease in online lending good for the business economy or problematic?
On the one hand, increased regulation can be a good opportunity for the economy because, like all kinds of services and benefits, it is essential for a prosperous and prosperous business environment. When it comes to online loans specifically, regulation is an essential tool to protect both consumers and loan providers. But there is a fine line between necessary and appropriate regulation and the kind of laws that stifle innovation and hamper growth.
Digital lending can provide a cost effective and convenient solution that provides a win-win situation for the consumer and the financial institution. An unregulated lending ecosystem is a recipe for disaster. We need regulation that matches the lending environment, because 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?
Although blockchain has been associated with Bitcoin and other cryptocurrencies, it is relatively new to the digital lending industry. But the potential changes it can bring are fundamental. Not only does it offer best-in-class security – which is imperative for online money transfers and other lending processes such as collecting verifiable data, underwriting, and securing smart contracts – it enables the bank and the customer to record their transactions in a simple way. and in a verifiable manner. By building a blockchain technology lending platform, contracts and transactions become indisputable. A report from the World Economic Forum said that by 2025, 10% of global GDP will be stored on the blockchain. It is definitely a technology that is here to stay and is only going to grow in importance.
Digital signature technology has also accelerated and while not new, it has innovated extremely quickly over the past 12 months due to Covid-19. Digital Knowledge of Your Customer (e-KYC) has grown rapidly, reducing the time it takes between initiating a loan application and receiving approval and funds at your bank. By digitizing the entire verification process, many online lenders have been able to better serve the needs of more clients in a much faster and more transparent manner. Gone are the days when a representative from your bank had to meet with you in person to complete KYC documentation. Everything can now be completed digitally.
While not a new technology, the cloud also provides a huge opportunity for banks in the lending arena. Cloud technology enables the bank to innovate faster and more profitably. It also allows them to work quickly, and that’s what today’s digital customer wants; speed, accessibility and ease of lending.
The opportunity for banks is to take advantage of the flexibility, scalability, high performance and security of the cloud to manage large volumes of transactional data and functionality to translate it into value for their customers. This will inspire confidence in their ability to keep pace with agile, highly responsive and adaptable fintech players. In this case, it can help reduce loan application decisions from weeks to days, save money, promote better decision making based on how much data cloud technology can facilitate and ultimately generate income.
Machine learning automation and big data also enables lenders not only to make faster decisions, but also to make more informed decisions. Automation can save a lot of internal resources and overhead for the vendor while ensuring a hyper-personalized customer experience for the requester. Speed, responsiveness and agility are just a few of those boxes, machine learning automation and big data.
Q: Is the boom in online lending purely customer driven and will it become “the norm” for the foreseeable future?
It’s not just customer driven. A mature regulatory environment, for example, where laws foster a strong digital landscape for consumer borrowing, has also bolstered the digital lending boom.
There are also the advantages that digital loans offer to financial institutions, whether it is a traditional bank or a new player in fintech. In addition to the cost savings that digital lending can generate for institutions, it can also generate revenue growth resulting from stronger pricing power and the ability to meet the needs of a greater percentage of customers. clients.
About: Amit Dua is President and Global Head of Customer Focus Group at SunTec Business Solutions. Based in London, he leads the sales, business development, customer engagement, alliances and industry solutions functions for SunTec globally.