Does your digital lending go beyond mobile?

By Daragh O'Byrne | 17 October 2017

Digitization is very topical at the moment, it has triggered many conversations and its impact in banking has been hotly debated. Financial services seem to be ripe for disruption by the new breed fintech companies for a number of reasons including rapidly evolving customer preferences, declining customer loyalty and the proliferation of options. While some fintechs have offered new approaches to lending, the majority of the traditional lenders are still not fully embracing digitization and offering its benefits to their customers. Why is it so? Some believe that it is a passing fad or used only by young people while others believe that regulators will protect their businesses from disruption.

It is clear that the banking and financial services space is undergoing a digital transformation wave, but it is not clear how the future will unfold. A recent survey by PwC reported that while 30% of customers plan to increase their usage of nontraditional financial services providers, only 39% plan to continue using solely traditional service providers. The same report states that 88% of incumbent financial institutions are increasingly concerned that they are losing revenue to innovators. This indicates that fintechs have been able to take advantage of the gap in what customers want and what banks have to offer. Moreover, it appears that some financial institutions may have taken too much time to implement the digital strategies required to turn the tide to their advantage.

Some of these actions could have been driven by misconceptions. For example, some people believe that digital starts and ends with mobile. However, digital is much more than that; it is more than being online and mobile. Today’s customers compare their banking experiences to that offered by the leaders in technology, retail and entertainment. While it may appear that customers like to visit bank branches for loans, it might not be because they prefer human interaction but rather because the bank’s digital experience isn’t fast, simple or user-friendly.

When embarking on or evaluating a digital transformation program it is vital to check what the primary drivers are – was it cost reduction, or efficiency enhancement, or expanding business reach or matching competition?  To achieve the desired outcome it is vital to ensure that the program is aligned with the objective, and that customers are at the heart of that objective.

Let us talk about a few pointers, which can help lenders in bridging the gap between customer expectations and their efforts.

Get closer to customers’ expectations – While it is never easy to identify the missing element, it is the first step to reach where you want to be. As per an EY survey, there are a number of reasons prompting customers to try non-bank service providers and the most important of them are related to customer experience. While ‘trust’ and ‘long term association’ are extremely important criteria for customers in banking, current trends indicate that customers are open to exploring newer options in niche areas such as lending. Anticipating what your customers want and offering personalized products over a channel of choice could well be a game changer.

Make the transformation “transformative” – Adding new delivery channels at the front end isn’t the real game. The back-end needs to move in sync with the sleek front end to deliver the real benefits. The power of digital lies in ensuring that there are seamless, automated processes across the loan lifecycle, irrespective of the systems in use. As an example, while a lot of focus is levied on the loan origination aspect, banks should not ignore the loan servicing area where customers spend the longest period of their relationship with the bank, an area which can make or break the chances of a cross-sell/up-sell opportunity.

Make better credit decisions faster – Processing loan applications quickly and maintaining a high quality credit portfolio are not mutually exclusive objectives. Incorporating comprehensive credit scoring mechanisms guided by insights from predictive analytics helps to process applications faster, while improving the ability to reach new customer segments, and reducing the cost of operations. And all of this can be done while delivering higher quality credit decisions.

Personalize with ease – The rise of fintechs has proven that a one size fits all approach does not work anymore, especially as customers become more used to tailored services across industries. A digital setup helps in capturing the digital footprint of the customer, which in turn makes it easier to analyse their needs and offer personalized services. 

Put your data to work – From identifying the right products for a specific customer segment to adopting the most preferred channel and identifying strategies for reducing customer churn to taking proactive steps for boosting collections – working with analytics is best suited for banks sitting with huge piles of rich data. As customers trust their banks with their money and confidential information, they expect their banks to know them better and provide solutions tailored for their needs.

A unique combination of customer expectations, regulatory push, volatile economic scenarios, evolving political climate and ongoing technology advancement has ensured that lenders need to think beyond the normal. Digital lending offers one such opportunity where the benefits outnumber the risks by a huge margin. It is going to be extremely difficult to build an organisation of the future by ignoring this vital aspect which has now been brought into focus by the disruptors. It is true that customers’ trust is an asset for traditional banks but it is essential that traditional lenders fulfill their obligations by embracing the wave of change and taking their customers with them.

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