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Building Digital Loan Origination Into Your Bank’s Offering


September 11, 2021 | Jonathan Pryer

Creating Credit Experiences to Compete with Challenger Banks

Prior to the 2009 financial crises challenger banks weren’t the hungry fintechs taking bites out of the traditional banking industry that they are today. It seems hard to believe, but just 10 years ago challenger banks were still only an idea floating around in the heads of entrepreneurs frustrated with their existing banking options.

Before the crises hit, many European countries financial industries relied on a few key players. This was especially true in the UK where the country’s financial industry relied on a small number of banks to maintain the health of the entire industry. This uncompetitive environment wasn’t just detrimental to the industry itself, it also meant that consumers lacked choice.

Several years ago, the U.K. decided to address these problems in one key move: they lowered the barrier to entry for banking and encouraged the development of digital-first establishments. Enter challenger banks: niche-focused and digital-first

The End of the Level Playing Field

Banks haven’t always had the best reputation (apologies to any bankers reading this), but trust in financial institutions was hit especially hard in the wake of the 2009 financial crisis. In fact, past studies have shown that up to 80-90% of the public viewed them as untrustworthy, and when they violated customer trust, they often had few repercussions except for a quick fine.

Conversely, challenger banks entered the market with no established concepts around their business. A clean slate gave challengers the opportunity to build their brand without the negative sentiment experienced by traditional financial institutions.

They also had another key advantage: technology. Not being burdened by legacy IT systems immediately gave challengers a huge digital advantage over banks weighed down by monolithic legacy systems.

Challenger Banks: The Future of Banking?

It has been said that the Challenger Bank movement will determine the future of banking and money, despite the frequent mishaps that innovators often encounter. The key here, is that Challenger Banks, like tech companies, often approach the market with an MVP (minimum viable product) and iterate product portfolios until the right balance is achieved.

So, while many large banks are stretched very broadly, operating in product silos, Challenger Banks can quickly refine their overall offering to focus on quality and experience over quantity. So, how can banks compete with challengers that are powered by new technology and hyper-focused on innovative products and services?

Banking on Trust

Traditional financial institutions may have struggled with their reputations post financial crises, but a 2019 survey by Accenture showed extremely positive results for banks when it came to customer trust:

  • An average of 77.75% of consumers (across all persona groups) trust banks to care for their long-term financial wellbeing

Results were not so strong for non-traditional financial institutions:

  • Only 35.5% of consumers (across all persona groups) trust non-traditional institutions to care for their long-term financial wellbeing

So, while banks may be lagging behind when it comes to technology, they still outperform fintechs and challenger banks when it comes to consumer trust. Financial institutions trying to compete with their challenger competition should bank on the inherent trust that consumers still hold for brick and mortar institutions as a foundation to secure long-term loyalty with customers. Is this an obvious point to make?

Absolutely. But it’s how this trust can be used to build stronger bonds and expand product offerings that offers a huge opportunity for traditional financial institutions.

Dealing with Data: Customer Trust Expands Opportunities

In a time when data breaches are common, billions of records were stolen in 2018 alone, consumers are on high alert when it comes to sharing their information.

So perhaps one of the most fascinating results of Accenture’s study is that customer trust in traditional financial institutions extends to trusting banks to keep their data secure. 80% of consumers surveyed trusted their banks enough to share additional data to receive more relevant offers.

This gives banks an incredible opportunity to create truly personalized services using data gleaned directly from customers. But banks can go further, with many consumers sticking with the same financial institution for many years, banks have been gathering an immense amount of data on customers that can be used to personalize and pre-approve offers for individuals.

Wouldn’t it be nice if your customer’s felt like you truly understood their needs by offering the right products at the right times?

As a bank there’s a lot that can be learned from how challenger banks have approached disrupting the industry. Let’s consider a standard financial category that you may offer, and how the use of technology and data can improve that experience for your customers.

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Mobile Loan Origination

Customers have an increasingly strong preference for the loan origination process to be mobile-friendly and fast.

  • Accenture found that on average 81% of consumers would share more information to get faster services and approvals

Challenger banks have greatly improved the loan origination process for consumers. They’ve removed the once long, paper-filled process and made approvals almost instant – all the while accepting nothing less than improved compliance and mitigated risk.

The smart pairing of data access and automation powers much of this process. And, while the idea of a loan being commenced and approved during an afternoon at work would be laughable 20-30 years ago, now it’s expected.

Offering this type of capability can seem daunting for both a startup with 25 employees and traditional banks, but launching a mobile or web app that can collect your customer’s application details, integrates with your systems and third-party data sources, decisions that loan, and provides an approval instantly is only a matter of starting with the right technology.

Building Data into Your Loan Origination Process: Using Data to Level the Playing Field

A common challenge banks face is being able to access, orchestrate, and use data. To get the most out of their historical data and gain access to new data, banks need to find a way to draw their data into one location as a foundation for decisioning and customer personalization.

Connecting disparate systems and data silos can provide banks with a huge advantage over their competitors as they’re able to gain much deeper insights into their customers and more easily assess associated risk. But legacy technology makes this almost impossible in many organizations.

To solve these issues, banks need to look for a solution that allows them to create a decisioning ecosystem. Technology that connects the dots between their CRM, historical data, new customer data, and their loan origination processes.

It’s only by using data to predict customer needs, pre-approve products, and personalize offerings that banks will compete with the challenger banks nipping at their heels. And, if banks can match this personalization across both physical and digital channels, banks could well disrupt the disrupters!

“Our entire approach is built on simplifying banking. One of the ways we do this is by making the customer experience fast and effortless; from the initial on-boarding process through to every subsequent interaction. The Provenir Platform gives us speed and flexibility in our lending operations, which enables a customer to apply for a loan at lunchtime, receive immediate approval, and have the money available in their account later that day.”

CEO, Instabank

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