By Paul Thomas, Provenir
Technology impacts all industries and for financial service providers it has the potential to shake-up the way services are delivered and customer needs are met. Whether technology innovation stands to evolve or revolutionise the finance industryis an interesting debate.
Its impact is starting to be seen in the way finance providers make credit and lending decisions andin the way they run their loan origination processes.
New types of companies using new technology solutions are entering the industry and disrupting the way things are done. Klarna is arguably revolutionising online payments by taking only basic personal details from shoppers’ up-front and collecting payment after goods have been received.
The technology that backs up Klarna’s approach supports rapid credit decisions and frees up the customer from entering financial data. It’s a significant step along the road to friction-free checkout – a merchant’s paradise and shopper’s delight. It’s a refreshing and effective approach.
Alongside this revolutionary innovation we also see technology helping the industry evolve how it works. In some institutions, outdated technology and patchwork systems still underpin largely manual processes. Here, technology can evolve practices to help meet today’s customer expectations of speed, reliability and always-on access to services.
Potent drive for investment
Where risk management has been a frontrunner when it comes to securing departmental budgets, financial service providers are now recognising an even more potent drive for investment – the customer. Meeting their needs is the only way to be successful and compete, and it is getting harder to do that without investing in digital solutions.
The value in taking a long hard look at the processes used to serve customers is recognised. If the process of taking a prospect from enquiry through to paying customer isn’t as smooth as it can be, then there exists an opportunity to improve.
Allowing in innovation doesn’t mean introducing risk. Lenders should keep their healthy risk obsession while at the same time being open to technology that can help them win and retain customers.
Customers expect to access services online and on mobile, and to switch between in-branch, phone and email contact. They expect the turnaround time of credit and loan decisions to match the fast pace of the channels they use to apply for and consume those services.
Many finance providers still support credit assessment processes with manual, paper-based back office operations. A digital relationship with customers means investment in technology solutions.
For those providers that accept the need for digital solutions they’re arguably not thinking wide enough or deep enough. The scope needs to extend to every platform and every process; and every individual in the business needs to buy into the vision, from the CEO down.
It is becoming harder to justify a position of status quo. Despite stringent regulations and the spotlight that’s shone on institutions since the financial crisis, a surprising number of potential new banks are going through the process of becoming regulated in the UK. Together with peer-to-peer lending and crowdfunding, competition threatens the established order within the industry.
For new market entrants technology offers opportunities. Many of the new players exploit the online channel. They are fledgling institutions without legacy costs and legacy systems hampering their innovation.
Short-term lenders are bolstering their processes to be able to demonstrate, at the point of loan offer that they understand the borrower can repay it. The effective management of data is central to the process. Gathering the most valuable data, analysing it, understanding the risk level and returning a reliable but quick result is a big ask if processes are manual and information has to pass from department to department, with data often being re-keyed into multiple systems along the way.
Harnessing smart data, speeding up credit and loan decision processes and raising customer satisfaction are branches of the same tree. Data specialists like Big Data Scoring are becoming an ever more integral part of the process, helping credit and lending institutions get to a responsible lending decision quickly.
They are tapping into sources like social media to unearth indicators that can be used to predict behaviour. To get at these indicators, algorithms go through a mountain of data to harness the mere couple of hundred variables that can be used in modelling and building credit data scores.
Evolutionary innovation builds improvements into existing industry solutions to make them better and more efficient. The lender/borrower relationship is still the same, with the same end result. With the innovation technology can bring, the infrastructure that supports it is beginning to evolve into something slicker, more accurate and more mutually beneficial.
Paul Thomas is Managing Director of risk life cycle technology provider Provenir