Banking 4.0- Simplify the lending process, or lose the customers
One of the biggest threats that banks face is losing their lending business. Traditional banks will lose to the ecosystems being built by telecom, social platforms, e-commerce, fintech, food-tech, and ride-hailing players.
Banks that do not simplify the lending process will lose the profitable business of lending to technology and platform companies.
No matter how many traditional banks advertise about their customer-centric behavior or make claims on their lightning speed approval processes, they are still not there.
For the banks, lending along with payments business has been a good source of revenue.
However, now both lending and payment sectors are getting disrupted by fintech.
The New Normal and What’s Next?
- Digitally originating and approved loans: More and more loans will originate through online channels. For the lenders, it will be essential that their loan offerings are easily accessible through the internet, mobile apps, and other platforms.
- Rise of Vertical banking and partnerships: Company-owned online
channels will be necessary, and there will be partnerships with
digital platforms and ecosystems of a particular sector. If Amazon
merchants want a loan, then Amazon can serve it through its own
lending business, or it can tie up with a financial institution that pays
Amazon a small share for every loan converted with its merchant
community. Uber offers car finance to new drivers who want to
join its driver community.
- Instant approvals on credit scores and transaction data: As the credit scores, digital banking transactions, and online business transactions of potential borrowers increase, the approval process will be done on a real-time basis. Approvals will be about accessing a pre-existing credit profile or maybe punching few verified numbers into open banking systems. China is already at the forefront of implementing social credit scores.
- Emergence of fintech, community pools, and gatekeepers:
Fintech companies thrive on their ability to form the right digital partnerships. They want to develop “user-stickiness” in their
ecosystem so that everything a client wants they can supply through
one “SUPER-APP.” Banks trying to build everything themselves, will lose big. Open banking is the only way Banks can compete with super-apps.
- The Shift From lender to an incubator: A significant limitation that banks have is that they provide only capital to the businesses and not other support needed by them. Businesses need capital, but they also need many solutions. In SME space, only those banks will win that play an incubator, accelerator, or problem solver for SMB/SME’s. Capital is just one of the problems that Banks solve; the future belongs to fintech that solves the operations, employee, and customer management problems of the small businesses.
Take Square Inc., for example; it is continuously innovating point of sale hardware and merchant software. The devices ensure it is providing solutions like invoicing, account management, and cash flow statement to merchants and, and in return, gets access to the transaction data
As I highlighted in the previous post- The world needs banking, not the banks. Therefore, it is critical for banks to adapt to the digital age where the companies like FAMGA + BAT TMD+ Uber/Grab/GoJek have transformed customer expectations forever.
Digital and Fintech Expert
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