Can a digital lender be more than purely an efficient lender?

By Daragh O'Byrne | 4 December 2017

Artificial intelligence, machine learning, robotic process automation – these are a few of the technologies that are set to disrupt our lives. If you listen to the experts you’ll hear two main views of the future – one that is focused on the benefits the innovation will bring and the other that is focused on potential serious negative implications. However, both agree that today’s jobs will be totally transformed – in fact McKinsey recently reported that 800 million workers will be replaced by machines by 2030. In financial services, John Cryan, CEO of Deutsche Bank, recently stated that he expects a “big number” of his current staff to be replaced by robots, and Gartner have said that by 2030, incumbent financial institution will have fallen by 75%.

With the tremendous cost advantages that the new technologies bring, it is little wonder that so much focus is being placed on efficiency. But is that what ‘going digital’ means?  Is it about being available on the web, mobile and across social media? Is it about being paperless and having automated processes? Yes, it definitely includes these things but it is not limited to just these things. In our previous article, we discussed how digital lending is much more than mobile and should be looked upon holistically to fulfill customer expectations.

It can be very easy to say ‘it all starts with our customers’ and that the reasons for going digital are therefore driven by customer expectations. But there is more to it than that. Clearly, it helps reduces costs and may make it more appealing for younger customers. If competitors are all going digital and if it the regulators are pushing digital then the pressure builds.

While all the above are valid reasons for adopting a digital proposition, it is also essential to map it as an additional source of revenue.  This is when things become tricky – how can banks profit from digitizing lending.

Digital = Speed. Speed = Capacity. Customers today expect loan decisions in minutes not days. And while “trust” and quality of service are important when making a choice, speed and convenience are increasingly crucial. When you are able to process loan applications quickly without compromising on the quality of your credit portfolio, you create more capacity to process more loans without adding more cost. Not only is the customer happy with faster service, while your loan portfolio grows but you also reduce the unit cost of processing a loan. And the indirect benefit of turning customers into “brand advocates” cannot be overstated in a world where social media gives everyone a platform to share their experiences globally.

Digital = Virtual. Virtual = Ubiquitous. If you can originate and service loans without requiring your customers to visit the branch, you can grow your business anywhere, even in places where you don’t have any physical branches. This is perhaps the easiest and fastest way to scale up and use the additional capacity that was created with the speedy processing. In the future, it is possible, perhaps likely, that there will be no direct interaction between customers and lenders as their requests for loans, will be handled by digital assistants and bots – operating completely autonomously.

Digital = Agile. Agile = Market Leading. With fast changing customer demands, dynamic economic conditions and evolving regulatory landscape, there is a continual need to roll out new products, perhaps anticipating market need in certain cases. The first mover advantage in a highly competitive market can be tremendously valuable and market leaders need to be able to conceptualize, design and launch innovative products extremely quickly. A digital setup empowers you to do that effectively. Even if an organisation adopts a fast follower strategy, it still needs to be able to keep up with the market leaders, so as they become more agile so too must everyone else.

Digital = Targeted. Targeted = Sell More. It has been reported that it costs five times more to attract a new customer than to keep an existing one, so it stands to reason that selling more to existing customers could be much more profitable than selling to new customers. However targeting customers with the right offer at the right time is tremendously challenging. A digital infrastructure powered by insights from analytics can help you identify who to target, with what product and when they are most likely to react. Also, it lets you know which channel is best suited to approach them with pre-approved offers for a better response.

Digital = Differentiated. Differentiated = Premium.  Seamless, fast and unique digital experience not only drives customer loyalty but also helps you differentiate from the competition. While this may not apply to a highly price sensitive market, studies indicate that many customers are willing to pay a premium for a faster, better and personalised experience.

Digital = Quality. Quality = Profits. By making better credit decisions faster, you improve the quality of your credit portfolio, which in turn reduces the level of non-performing loans (NPLs) translating into higher returns. An end-to-end digitized infrastructure eliminates manual intervention, reduces errors, standardizes decision making (not relying on individual, case-by-case judgment) and identifies pre-delinquent cases early (which can help prevent them becoming delinquent).

Clearly, digitisation can deliver a wide range of benefits including increased efficiency, reduced costs, improved customer satisfaction, increased competitiveness and improved agility. Individually, each one of them offers tremendous value, however organizations need to consider the wider context and the long term strategy. As banks are ultimately in the business of growing revenues while increasing profits, they need to outline a digital transformation strategy that aligns with the long term aims. Narrowly focusing on efficiency gains will deliver short term gains but may mean that banks miss the opportunity that ‘going digital’ brings.

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development