As the Indian economy looks to shift from response to recovery post-pandemic, there is much expected from the financial institutions lending to the Small and mid sized businesses. Like it has happened in every other country, the smallest businesses have taken a massive blow and they will need to now rebuild from scratch. Traditionally, lenders have relied on banking data or order book for serving small business clients owing to which financial innovators took weeks for coming out with the approvals for these loans. Today much seems to be available in India in the fully digital ecosystem and some Fintechs now are looking at disrupting digital lending through innovative use of these surrogates. There has to be a paradigm shift of the truest nature in the Industries most endearing term – Know your Customer (KYC) and Know your Business (KYB). The approach is the same globally – to become customer-centric, by using data and to provide an end-to-end digital experience that is comprehensive as well as simplified, not only to the Customer but also to the Banker, who wants his Small business customer to succeed financially.
One of the recurring issues that small business owners faced even before the pandemic, not having enough formal credit history and thereby never qualifying for any formal loan, as a result Banks have kept lending more to those who borrowed more, which in itself has created a different systemic problem. The pandemic caught financial institutions unaware, with a sudden rise in financial requirement, and a sudden surge in small businesses approaching the formal lending sector. Banks with their reliance on outdated lending processes turned out to be quite inadequate for this high surge in the inadequate demand.
With the government’s push on digital initiatives, including policies like EASE 3.0, some banks would have been able to digitally connect with the businesses on the ground, without any physical interaction. But the story on the ground might eventually turn out to be completely different once the Banks come out with their actual results on the Credit offtake. The application to the disbursement ratio might have actually gone completely South. This can be attributed totally to the lack of modern systems which can manage any loan application end to end. Most of the System oriented challenges can be pointed towards huge investments in antiquated Core Systems which are completely closed for any external communications incoming or outgoing. These Systems called “Legacy” for the right reasons have outlived their life and most of the young lads who implemented these in our Banking sector would be happily living on their pension incomes. So is it time for the Banks to do a heart transfusion and rip out their Core. Or do they simply surrender all the new age loans to the much agile Fintech sector.
TheseFintechs offer huge advantages, of course, are manifold – one can take the example of loan approvals that earlier used to take weeks and are now completed in mere days or even hours. Adding to this is the fact that digital lending has now made aspects like loan management, security, compliance, etc. much easier.
Maybe there is a midway for these Banks, who can start their Digital transformation using Modern Platforms. Before we get into that, isn’t Platform the same piece of code that created these monoliths in the first place. Herein lies all the difference and the secret of how new tech is helping the Fintechs. New age technology is all about agility, ease of deployment, ease of customization, on-the-fly changes, open banking, API based collaboration. So what is the real difference between a Platform and a Product (like Core Banking System, Treasury Systems, etc.).
- · A platform is designed to keep both producers and consumers in mind while a product is designed keeping only consumers in mind.
- · In a platform-based business, value is created through the interactions between users and third parties. The platform creates an ecosystem value, hence firms charge uses for the Platform usage.
- · Products on the other hand create value by charging money for certain features/items based on customer needs. Products, thus create customer value.
- · Products are unidimensional, whereas Platforms can scale to add more functionality, use-cases, revenue streams and hence provide Future Investment Proof.
While the usage of a lending platform provides unquestionable benefits – the actual consideration in this scenario lies in whether you should build a lending platform or buy one?
The solution, it seems, lies in the usage of a white label platform – and here’s why
Building a Lending Platform Requires Considerable Human and Financial Resources
It is no secret that building a lending platform will require heavy investment both in human resources as well as financial. While people argue that building a platform ends up being beneficial in the long run, in terms of ongoing expenses that you can save upon. The truth, however, is not that simple, lending platforms generally require constant maintenance and updates – and if you look at difficulties like technical snags, regulatory updates, constant technical innovation by competitors, you might be facing a bigger loss.
Another pertinent thought might be whether one could just hire staff, to deal with the problems mentioned above, however, in this case, you might be discounting the uptake on a major scale, that a specialist brings to the table with proactive as opposed to reactive measures. In fact, many a time, companies that have a wide client base, end up offering cost-effective solutions, much better than anything you can achieve on your own.
White Label Lending Platforms Offer Superior Performance
Traditionally as a bank, the core competencies that have been honed by you would lie in creating banking products and building professional relationships, as opposed to creating a SaaS solution. On the other end, for a service provider, the expertise would lie in building a white-label lending platform through trial and error and feedback gained by working with several other banks.
With technology, one of the biggest concerns and fears is going obsolete, and that is something that as a bank you would not have to concern yourself with when you hire the right vendor. With an ongoing feedback loop, there will always be new ideas for improvement regarding the user experience of the lending platform. Constant updating of the platform is something that you would not have to worry about as the vendor would continually fix issues that may or may not be apparent to you.
This partnership, can help in the enrichment of the entire digital lending process, by better sourcing and leveraging the digital ecosystem access that a fintech can provide – from insightful credit evaluation, taking into consideration traditional financial along with alternate data points to better monitoring and compliance based on real-time access to information, to future trend predictions, partnering with a white table lending platform, would create better efficiency, and offer a seamless digital banking experience to your customers.
Also Read: How disruption in lending benefiting MSMEs?
Time is of the Essence
In the cutthroat competitive environment of today, you cannot afford to wait for long. As a bank, it is highly unlikely that you would already possess the know-how of creating a more cost-effective or better lending platform, than what the top player is offering in the market already and even if you do, it would take a while to be able to push out the product.
The ease of plug and play that is offered by a white label lending platform, can help you in getting kick-started in a couple of weeks, as opposed to taking a year or more if you want to build it on your own. Not to mention, the trial and error process that would be ongoing, before you have a product at hand that you feel is up to the mark.
Creating a nimble business proposition like a fintech with seamless customer experience is something that all your competition is geared for and with the proliferation of opportunities and innovative disruptions offered by the diverse collaborative models that have emerged between fintechs and banks boils down to early adoption and timely enhancement of services in the end – to capture a larger customer market base.
Become a Part of the Digital Banking Revolution
Businesses today expect digital application processes to be fast and streamlined, owing to the fact that given the volatile economic environment of today, they want the money to be in the account as quickly as possible, as they might risk bankruptcy. Traditional financial institutions generally do not have the technology or manpower that is required to build their own customised solutions that can support a fully integrated end-to-end process.
By partnering with a white label lending platform, you will be able to leverage a customisable solution that can be personalised and branded as your own. This means that instead of a disjointed experience, you can offer customers a cohesive application experience from end to end with minimal disruptions. This, in the long run, gets rid of unnecessary steps that generally end up creating friction and distrust, thus making sure your customers experience greater ease. In an age where business owners are now used to optimum efficiency and speed in most fields – a slow traditional banking process is something that would not sit well.
Thus, the adoption of a white label lending platform would be the best way forward in modernising your services to meet and exceed customer expectations.
Views expressed in this article are the personal opinion of Vineet Tyagi, CTO, Biz2X.