Why borrower experience will be the principle driver of bank revenue in the lending market

By William Wagner | 21 February 2018

The benefits of improving customer experience in financial services continue to accelerate, particularly as the percentage of Millennials occupying the marketplace continues to increase. Today, banks’ core target customers are not only increasingly tech savvy, but also are used to functioning in a world where services are smoothly integrated into their lives through evolving technology.

Tech giants such as Google and Amazon have rewritten the rulebook for consumers when it comes to what they can reasonably expect from their service providers, consequently bank offerings are being judged to the same standard as the most innovative digitally native products in the world. Antiquated hangovers from the pre-digital age of financial services that rely on physical presence and paper documentation are an unacceptable inconvenience to the modern consumer that simply will not tolerate legacy process.

The problem for legacy banks of overhauling outdated, non-digital processes is also exacerbated by the presence of new entrants in the market aiming to disrupt incumbent banking on multiple fronts, including the lending market. These new service providers are not hindered by obsolete practice or technology, being digitally native affords them the agility to outperform incumbents on user experience, meaning disruptors will become more competitive as the importance of user experience as a key differentiator of providers grows.

The benefits of improved customer experience

More generally, banks must focus on improving user experience to remain competitive as digitally native fintech products flood the marketplace. Focusing specially, the motivations for improving customer experience can be described as:

a) Differentiation Financial services can no longer lean on long-standing relationships and brand positioning to generate new customer business. Customer are more assertive with their research and purchasing decisions, due in part to the volume of material to evaluate at their fingertips. A unique customer experience proposition, or positive customer experience reviews and ratings, allows businesses to stand out in the marketplace.

b) Positive brand response In addition to research, some customers will also place emphasis on the emotive impression they receive from a product when making purchasing decisions. Better customer experience is a key driver in generating a positive emotive response.

c) Coping with an economic downturn During a recession or other global economic hardship businesses are placed under increased financial strain. Services viewed positively by their existing clients will stand a better chance of retaining their clients as well as growing their client base during the downturn.

Lending and the borrower experience

Traditionally user experience has never been a key priority for lenders. However, in much the same manner as other financial services have been forced to refocus their thinking with customer experience at the forefront of product strategy, the increase in consumer choice has impressed upon lenders the need to revolutionise in this area.

Across the spectrum of financial lending products, spanning consumer loans, commercial loans, small business loans, construction loans, and equipment leasing, financial services executives are searching for innovative solutions that are able to overhaul the outdated borrowing process that is the is the result of legacy infrastructure and process.

It is in the gap in the market created by the growing disparity between customer expectation and borrowing experience that has allowed alternative lending platforms to build upon automated end-to-end loan experiences for the consumer. These digitally native lenders have developed products designed specifically with the modern day, technology discerning consumer in mind, and consequentially have experienced significant market share growth.

Paper application forms, branch visits, physical identification, proof of address, and required signatures are just some of the outdated procedures that are still present in the lending market. But as banking services trend towards digital-only offerings, it is imperative that these practices are removed as obstacles to a smooth digital borrower experience if traditional lenders are to fight back and maintain market share moving forward.

The role of fintech solutions in enhancing borrower experience

In the quest to digitise across the board, financial institutions are turning to solution providers to assist in developing the technology necessary to safely replace outdated procedures.

The best of these solutions, whether bespoke or white label, hold the initial advantage over in-house lender solution development that the project timeline is far shorter. Financial services tackling the issue of upgrading their lending user experience to digital for the first time will be hampered by a myriad of issues that solution vendors have already smoothed over; inevitably the go-live speed of a tech implementation overseen by the right solution vendor will be much shorter, by months or even years, than if the project were wholly managed in-house.

In addition to increased user experience, lenders are also increasingly focused on the financial benefits of reducing operational inefficiencies through automation in addition to increased customer revenues, as improved user experience propels bigger market share. For lenders, working with specialist fintech vendors who can deliver best-of-breed solutions is the most efficient avenue to fulfilling both criteria, of offering best-in-market digital user experience solutions and reducing costs through automation.

Margin improvement continues to be of critical importance to financial services executives. It is with this goal in mind, namely being able to increase output and revenue whilst simultaneously lowering head count and cost, that fintechs with optimal solutions become attractive as a potential technology partner.

Moving beyond the front end

Although most banks now acknowledge that offering digital services across products including lending is now imperative, many remained focused on delivering front-end solutions only.

In order to realise a fully digitised product with the most enhanced user experience in the market, lenders must implement a front-to-end platform that simplifies the lending experience and accelerates the loan processing journey by replacing all of the non-digital hurdles in the loan application process.

This platform must be agile enough to be able to support a spectrum of products and services that borrowers have begun to expect from their lenders; as this expectation continues to develop the platform must be able to adapt to new products accordingly.

Additionally, a digital lending platform upgrade must be scalable. The solution must be able to accept new the development of new products, and these products must be easily developed and integrated within a short turnaround time; days and weeks rather than months.

A further benefit of partnering with a solution vendor that offers an end-to-end system is the simplicity of managing the operational, business, and regulatory risks associated with overhauling a lending function. One solution with a single system of record allows for no gaps in risk management coverage or confusion of how and where risk is being recorded and mitigated.

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