Building Online Lending Business and Products? By Fintech Expert Sidhartha Sharma
Cash evolved as plastic money which then evolved as e-wallet money and finally evolve as Central Bank Digital (CBD) Currencies.
CBD will be the final frontier of money evolution, especially if bitcoins/etherium do not evolve as the globally accepted money due to any reason.
This piece is about the other side of money- credit. A process that creates values for the depositors and investors.
How to build an online lending business?
The answer lies in embedded finance, customer journeys, digital communities, and commerce.
Who other than banks will win the race of lending business?
Regulations are increasingly working in favor of FinTech and taking the ‘protected business’ advantage away from the traditional banks.
- E-commerce- Ecommerce companies will be able to build lending businesses easily as they have millions of merchants selling on their platforms. The transaction data gives insights into the health of the business revenue and growth. The pre-approved loan products can be given to SME’s (small and medium enterprises) in their online dashboards- available at the click of a button
- Ride-sharing-Mobility players do have a similar opportunity by offering banking, insurance, and lending products to drivers across their platforms. Cars financing, insurance, and personal loans are available for the drivers listed on their platforms.
- Food-delivery-Food-delivery companies can also offer lending products from the banking partners to the small restaurant and food-delivery business owners.
- Social commerce platforms-Social networks are yet to crack the lending business as social commerce is yet to emerge as the big opportunity- but by 2025 we will see all sorts of credit products emerging on Social commerce sites too. Presently, they do have a strong opportunity to launch p2p payments. Kakao and Tencent's Wechat pay are great examples of building credit businesses post the success of the core social networking business.
- Payments platforms- Payment players and ewallets like Stripe, Paypal, Square, PayTm are building communities either of merchants or consumers or both in some cases (cash app, Venmo). By offering payment processing software and application programming interfaces for e-commerce websites and mobile applications- they stand a chance to emerge as community gatekeepers and thus disrupt the bank’s lending business.
- FinTech and e-procurement solutions — Companies like Xero, and even Kabbage (acquired by Amex)- that has merchant invoice and accounting data, can build lending businesses. E-procurement solution providers can offer working capital loan products by the banking partners.
- Education Technology (EdTech) Companies- Sofi has built a successful lending business by providing education loans to HPNIC (HIGH POTENTIAL NO INCOME YET) category students.
- Property platforms- Home loans and property development loans can be offered to the customers directly via the prop-tech platforms.
The key lies in building a critical mass of community and then embedding lending products at points of ZERO (0%) friction within the customer journeys.
So the traditional banks now need to keep the Digital Age competition in mind while designing lending products. I have intentionally not touched on BNPL (buy now pay later) category that is disrupting the card business, and small amount consumer lending business for banks (upto amounts of 2000–3000 USD).
Luckily some of the major fintech players and e-commerce players do not have banking licenses to accept deposits or build a lending business- thus an opportunity for banks to design a formidable ecosystem of partners with customized lending solutions and frictionless customer experience.
Banks who manage to build an ecosystem will survive.
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Sidhartha Sharma (views are personal)