This year’s LendIt once again brought together online lending industry leaders, experts in lending platforms, investing and service provision to discuss, debate and collaborate on industry issues. Consumer lending was the subject of a deep dive; it is a sector that has seen new players enter the market to compete with traditional providers for the consumer dollar. Growth in the sector has been seen in particular in P2P lending.
Customer demand has fueled the rise of alternative lenders in the last few years. A PwC report indicated the P2P market could reach $150 billion or higher by 2025. The benefits to consumers of this form of borrowing include the potential for higher credit, greater flexibility and insight into loan status. But, as with all financing sectors, the consumer lending market is experiencing change. Challenges and opportunities it faces include:
1. Fraud – avoiding it and dealing with it when it happens
With growth in lending comes a corresponding growth in the opportunity for fraud. The challenge is on the industry to deal with the threat, to manage risk and to maintain the trust of consumers and regulators. The platforms and processes in place for risk analytics and Know-Your-Customer (KYC) have to provide protection against high-risk prospects, bad behaviour and outright fraud whilst maintaining a real-time experience.
2. Expanding reach
P2P lending platforms have the potential to generate broader adoption across the consumer industry. There’s a lot of noise in the market right now about student loans and student refinancing. This is a rapid growth area as demand is increasing. New types of finance companies have stepped in with attractive offerings to make an impression in this market.
3. New platforms can also be channels to market
By removing the traditional intermediary such as banks from the lending process, P2P lenders are able to significantly reduce operational costs and pass on cost savings to consumers via lower borrowing rates. Of course banks could decide at any time to participate in the P2P lending set-up as investors in their own right. They can acquire loans through P2P platforms; in this way adding P2P to their lending portfolio as a channel to market – a means to customer acquisition, albeit through an intermediary. This is a viable approach for banks open to opportunities by utilizing all available routes to market.
The risk processes involved in lending are very similar. The loan itself is a commodity – whether it’s a student loan, mortgage, SME loan or other consumer product. Providers need to deliver a good customer experience and a high level of service to succeed against growing competition in the marketplace for sales financing and lending products. If they don’t meet expectations, customers may pull out of the process. The balance to get this right is not about levels of risk, it’s about the risk analytics and end-to-end solutions that makes the whole process happen – if it’s unwieldy, the organisation will struggle to compete. Successful lenders will adopt a delivery model that supports complex processes, at speed and at volume, enabling them to deliver rapid risk decisions.
The range of new market entrants, specialized vendors and solutions providers attending LendIt recognise that IT is core to their product offering. P2P lending has established a growing customer base and has built up successful ways of working but now faces increasing regulation and standardization. Its success in continuing to grow market share will depend to a large degree on how well it adapts to meet evolving challenges while maintaining levels of customer service. Today, customers have choice and the lenders with relevant products and services, delivered in the best way possible with a high level of service will prosper.