Viktoria Ruubel, Chief Product Officer, IPD Digital
The challenge that faced the lending industry at the outset of its digital transformation was not how it could adapt, but rather if it could adapt to an online world.
There was real concern that customers would be unwilling to use and trust digital-only channels in financial services, prompted by fears over security and reliability. There were also concerns on behalf of the lenders, who questioned whether the underwriting model for online lending would prove successful.
With hindsight, many of these fears may seem naïve and old-fashioned. This is because in the space of a decade there has been a rapid change of mindset, and we are now in a position where many customers not only accept, but expect and prefer online choices when it comes to lending and finance. Mobile technology in particular has led to a change in how customers want to interact with financial institutions. They have become accustomed to convenience, being able to apply for loans at a time and a place that suits them, and expect a fast response.
Lenders too now acknowledge the advantages of a digital process, which brings scalability and cost benefits. Digital lenders are also able to access new customer segments which may not have been reachable by branch networks. This is good news to the lender, but also good news to customers who may have been underserved by banks due to location or traditional lending criteria.
The tables have turned so that the question is no longer whether digital lending can compete with the traditional financial lending institutions, but rather how the traditional lenders can adapt in order to compete in a digital world.
This question has been amplified by certain developments which mean that many digital lenders are no longer merely mimicking the business models of traditional credit institutions, but are using technology to enhance their offerings and go beyond what a lender could achieve using traditional methods.
The use of data is one example whereby digital lenders are taking big steps forward in enhancing their customer offering and improving their underwriting models. The ability to capture petabytes worth of data has allowed lenders to extend their services to the unbanked segments of society left behind by the traditional underwriting models applied by the banks.
Using IFP Digital as an example, we use hundreds of different data points collected through different staging posts in the digital customer journey to provide credit decisions for consumers in under a minute, while at all times respecting our customers’ privacy.
We expect to see further advances in the area of data collection and analysis which will continue to shape the industry. The adoption of machine learning and artificial intelligence are already underway, but they will evolve quickly and will no doubt be adopted by all digital lenders in order to push further innovation and improve offerings. By analysing large quantities of data in a very short space of time, artificial intelligence will make the customer experience even quicker and simpler, while reducing operational costs for the company. They can also help to prevent or identify mistakes and errors, as well as potentially fraudulent activity.
So, is it fair to say that those who adapt their system to accommodate new technology will always be the biggest beneficiaries? Not necessarily. Although ensuring you are keeping up to date with the latest technology is an important factor when looking to make your mark in a competitive marketplace, a more holistic approach is required to achieve sustained success.
At IPF Digital, we believe that success lies in a company’s “digital brain”. By that, we are referring to a combination of high-quality data, processes, tools, and skills married with an institutional culture which encourages experimentation, learning, and the perpetual improvement of products and services.
For some companies, particularly smaller entities, their most likely route to success will be in collaborating with larger firms to share insights and create a more powerful offering that can compete in a busy market. Strategic partnerships bring the benefit of shared insights, competencies, and technologies, and can often result in popular products or services which ultimately benefit the customer
The winners of the digital revolution in banking will be those which best meet the constantly evolving needs of the consumer. It is, after all, the customer that drives companies to enhance their offering, embrace new technologies, and adapt their approach to match the way that people want to interact with banks and lenders. In doing so, companies will not only need to adopt new technology, but be savvy in how they apply it and integrate it with their current offering and culture.