If You Can’t Beat ‘Em . . .How to Displace the disruptors

After the 2008 financial meltdown, banks faced tighter regulations and restricted access to capital. This situation, combined with rapidly changing consumer behavior, has precipitated a sea change in lending...

Snehal Fulzele 8th October 2015

After the 2008 financial meltdown, banks faced tighter regulations and restricted access to capital. This situation, combined with rapidly changing consumer behavior, has precipitated a sea change in lending practices. Advances in technology, maturing digital channels, and the availability of more advanced analytics have led to the emergence of alternative lenders that deliver customized products, more nimble technology platforms, and more responsive customer service. Marketplace lending saw 123 percent compound annual growth during 2013 and 2014 and is predicted to grow to a $500 billion market by 2020.

Disrupting-BanksThis dynamic business environment is presenting unique challenges and opportunities to traditional lenders. Here’s the good news: With their longstanding customer relationships, banks still own 99 percent of the lending market. In addition, unlike emerging companies such as Fintech, traditional banks are better equipped to weather tumultuous credit cycles and market meltdowns.

And the bad news? A simple case of ignorance. Most banks are not even aware of the market disruption that Fintech is causing, let alone the huge opportunity it presents. A recent survey revealed that only 18 percent of top bank executives know about LendingClub, one of the largest marketplace lenders in the world. Only 13 banks in the U.S. have a larger market cap than LendingClub, yet most banks are unaware of this marketplace lending phenomenon. Astute bank execs are starting to understand that they can leverage these digital disruptors to reach a larger consumer base. There are two primary ways to seize these market opportunities:

 
  • Collaborate and Diversify: Banks can collaborate with alternative lenders to economically diversify their businesses and gain more customers. They can leverage their technology platforms and apply their proprietary underwriting models to pick loans from a large pool and cross-sell other banking products.
 
  • Build/Buy a New Platform: Banks such as Goldman Sachs are creating their own lending platforms to provide existing customers with quick access to credit as well as to attract new borrowers and businesses. These banks can operate without the burdens of legacy costs and fixed infrastructure and expand without opening any physical branches. They can control the customer experience, leverage cross-sell opportunities, and venture into new lines of business.
 

In order to be successful, banks need to reengineer their diverse systems and invest in a technology that is affordable, fast, convenient and accessible. They need simplified processes that are not dependent on manual, slow, traditional banking procedures. To compete effectively in today’s nimble markets, they also need automated loan-onboarding processes that can guide consumers from application to funding in six clicks or less. You heard it right, six clicks. That’s the new standard, as I reported in a recent post.

 

The best way to achieve this type of flexibility is with cloud-based lending technology that is flexible and configurable, offering robust auto decisioning, a single system of record, and a world-class user experience. Click here to learn more about how banks can quickly deploy an online lending business and rapidly bring versatile new lending products to market.


Resources

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