Technology continues its conquest, disrupting industry after industry, transforming how we shop, travel and consume media. Consumer lending is no exception – it is quickly moving forward and away from its paper-based past. Today, new software solutions increasingly replace us humans when it comes to pricing and rating loans. Intuitive financing apps offer loan approval and transparent pricing and terms on the spot. We’ve been watching things change for some time. Here are our four key predictions for how consumer financing will continue to evolve with technology:
Digital-first model
Ubiquity both offline and in the digital space is crucial for any financial services company today. But the latter is becoming more and more important as tech-savvy Millennials increasingly drive the world economy and shape consumer values. It is crucial for consumer lenders to use digital platforms for client acquisition and learn to seamlessly provide products across all channels. Information technology systems should follow in step with fast and simple IT delivery, driven by market priorities. Adjusting to the current dynamic digital environment will make all the difference between tomorrow’s success and failure.
The rise of P2P lending
Peer-to-peer or “marketplace” lending allows a group of investors to lend to borrowers directly through online platforms. Businesses like this have been increasingly vying for customers with traditional consumer finance providers. Many of them are quite sophisticated and successfully leverage technology to make borrowing processes more transparent, safe and simple, especially when it comes to smaller loans.
Aiming to better understand the concept of the sharing economy, several years ago we launched Zonky, our own P2P lending platform. As of April 2016, it has brokered loans worth almost 121 million CZK – a significant amount for the Czech Republic. More importantly, this project has allowed us to think like a start-up, as well as to gain deeper understanding of the motivations and emotions that govern the consumption economy.
Smartphone dominance spreads
Today there are 2.6 billion smartphone subscriptions globally – by 2020, there will be over 6 billion according to a recent report by Ericsson. The business software company SAP expects mobile to become at least the second largest banking channel in every region by 2019. In North America, mobile is set to develop as the primary channel that will account for 37% of all bank interactions, while in Asia it will come a close second. Smartphone adoption will dramatically increase in countries that today are virtually untapped. In our view, fostering the ability to provide a digitised end-to-end loan experience through mobile apps should be a priority for consumer lenders. At the very least, mobile should be treated as a major decision-making factor when creating a company’s marketing mix.
Data dictates strategy
Consumer lenders today know more about their customers than ever before. Vast volumes of detailed data, new analytical models based on machine learning, and efficient ways of storing information open up new possibilities for financial industry members.
For us at Home Credit, Big Data is not about the sheer volume of information, but the sophisticated insights obtained from it. Through Big Data we continuously create opportunities for improving current practices, asking not only ‘who’ but ‘why’. Data has the potential to change everything, from risk management to cross-selling to customer support. Our new knowledge can allow for better capital allocation and ultimately – wider financial inclusion.
- Ericsson Mobility Report, June 2016
- How Mobile Is Transforming Retail Banking, December 2014