The promise of data and the future of lending

Lending markets have begun to integrate new technology into their processes, but Jay Cherrie of Appian believes the promise of data could revolutionize the sector further

by | March 25, 2022 | Appian Europe Ltd

Financial institutions globally have made unprecedented changes in the way they operate in response to economic uncertainty caused by the global pandemic and other recent events.

While fintech firms have been more agile adapting to COVID-19 restrictions, traditional lenders also poured investment into new technology to streamline their operations, accelerating innovation driven by consumer demand that was already underway.

“The pandemic reiterated the importance of agility and speed for the modern lending market and set new expectations around transparency and hybrid working which were not as prevalent before,” says Jay Cherrie, Global Industry Lead of Financial Services at Appian.

“Two important factors became key to success: reducing the time to approve lending deals, and the push for more targeted and tailored credit evaluation.”

Staying afloat amid market fluctuations

The lending market has experienced a sharp acceleration in digital services in recent years in response to rising customer expectations.

While most investment has been channelled toward the front end of the value chain, the last two years have seen a significant shift from traditional IT and “offline”-related solutions to building a frictionless and unified platform approach that provides a seamless customer experience.

“One single system is not capable of handling the entire job of end-to-end lending,” says Cherrie. “It’s a multifaceted process, with a myriad of external factors to consider such as locations, consumer preferences, behavioural data and risk assessments that need to be leveraged with automation in order to provide the best solutions.”

For financial institutions, having the right technology in place has become essential to maintaining a competitive edge, striking a balance between accelerating process execution and managing risks by implementing standardised processes.

Demand for collaboration

Cherrie believes the demand for collaboration and partnerships has been key for companies across industries to provide customers with the “most complete” solution possible.

Lenders have reviewed their technology stacks to find where further cost, labour, and time savings can be made, with the ultimate goal of streamlining key operational processes. Where appropriate, lenders have forged partnerships with fintechs instead of competing against each other.

“Cooperation and collaboration became imperative for traditional lenders to stay competitive and nimble,” says Cherrie.

According to a report published by the European Banking Authority (EBA) in September 2021, lenders which facilitate access to financial products and services through a range of digital platforms are met with a wider range of global opportunities. These lenders provide new ways of reaching additional demand without the costs of a traditional network.

“It is a two-way street; fintechs embed their solutions to traditional lenders and gain market acceptance, while traditional banks utilise these new technologies to speed up their processes and lower their costs with automation. It’s the perfect ‘win-win’,” says Cherrie.

Collaboration between fintechs and incumbents ensures lending providers offer a more streamlined approach when managing the entire loan cycle, accelerate the consumer onboarding process and the “Know Your Customer” procedure, and keep development costs low whilst also maintaining speed and agility.

Personalisation is key to meet consumer demands

To retain customers and attract new ones, lenders will also need to increase their focus on digital engagement and personalisation rather than just on transformation.

With the rise of challenger banks—which offer a consumer-first approach—consumers have become accustomed to having access to all their banking needs at their fingertips. This includes detailed financial advice, a personalised activity breakdown, and instantly available key metrics, such as when they last logged into online banking, made a payment, or queried a transaction.

One in two consumers reported an interest in personalised financial advice, according to Accenture’s Global Financial Services Consumer Study, and would consider companies such as Amazon and Google if they offered financial products.

“The Amazon effect is very powerful when it comes to personalisation,” says Cherrie, who believes personalisation will be a key differentiator for businesses, as prospective consumers are flooded with new value offerings and services.

“The algorithm recommending products is like the typical banking suite of products,” Cherrie says. “Personalisation and automation play a key role here in order to ensure that consumers are met with personal preferences based on previous purchasing data and behaviour.”

Utilising data and analytics

Data and analytics, partnered with machine learning and artificial intelligence, can provide defining patterns and habits which are very valuable to lenders.

“[Data] is vital to success in credit and lending in order to get a fine-grained view on pricing, scoring, and evaluating creditworthiness,” says Cherrie, noting there is much to be gained from new AI tools.

He recalls that while the fundamentals of the lending market haven not changed, the rest of the landscape is radically different. “Businesses are required to be quick and accurate,” Cherrie says.

“They need to utilise all of the data they have at their disposal in order to make good credit decisions that serve the market and their users correctly.”

Looking ahead

Lenders need to be as responsive and agile as possible by creating new business models, utilising data trends, and targeting new customer segments to future-proof their strategies, in order to ensure the continuation of the economy,

“Lenders should have an ongoing discipline to utilise their data to spot patterns, recognise behaviours, and form trends based on real-time analytics,” says Cherrie, who believes financial services providers cannot afford to ignore the potential data at their disposal.

“Automated reporting and real-time feedback is vital, especially because it can have a knock on effect in the entire system,” he says.

To ensure businesses remain innovative and compliant within the regulatory framework, personalisation and leveraging technology and analytics will be key to spot upcoming market trends, recognise potential risks, and identify areas for future action.

“I think these trends will drive improvement in the overall lending market, which will drive an increase in business capture,” says Cherrie.

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