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Traditional Lending Comes of Age

Written by Andrew MacDowell, Director, DecisivEdge™

As technology revolutionizes successive markets in disruptive waves, the lending industry is finally facing its own storm. Traditional methods of lending are quickly becoming obsolete in the face of altered consumer behavior, evolving business models and the rise of fintech. For example, credit is becoming more pervasive, and the proliferation of online marketplaces is creating new competitors to traditional lenders.

Fortunately, the destruction wrought to old models and practices has also created new opportunities and new customers. Consider the changes wrought in two stalwart industries – housing and real estate – by AirBnB. Hotels and motels must now compete with homeowners who are renting out their homes. For lenders, though, that means a new opportunity to lend to upstart AirBnB businesses operating small networks of houses.

Decreasing ownership

One of the reasons for the altered lending business models is because the mindset around asset and commodity ownership is changing. Ownership is falling out of favor, and assets are being treated as commodities instead. One of the best places to observe this – though we are only on the precipice of change in this industry – is in automobiles. A decline in car ownership is showing a strong correlation with the rise in technology that allows people to share.

Car ownership was once seen as an important part of adulthood, and it symbolized freedom; it also translated into traditional loans or leases. However, the advent of ride sharing services, such as Uber and Lyft, as well as the move toward autonomous vehicles, is a harbinger of a new landscape in lending. While attitudes toward vehicle ownership are shifting across all demographics, ride sharing is particularly popular among millennials, who view it through the prism of cost savings, eco-friendliness, and efficiency.

Buyers want it

Buyer behavior and expectations have evolved significantly over the last decade as technology has continued to exert a greater influence on spending choices. Consumers demand almost immediate service or results, and they are more likely to engage with your company via technology. Customers also expect personalized service and customized products that address their particular needs or situation.

This can be an extremely challenging issue to address, especially when you must provide individualized service to millions of clients. It is, however, not insurmountable if the right types of tools are utilized. For example, artificial intelligence can analyze corporate data sets to pinpoint areas of customer need or service gaps.

Stay relevant to get ahead

Lenders must adopt new strategies to remain profitable and stay relevant in the changing market. The overarching theme of these strategies must be flexibility. Technology evolves extremely quickly, and a failure to embrace this change may result in lost market share and decreased profitability. While technology has altered the landscape of business, it has also created opportunities, such as the rise in fintech, and novel business models that can help businesses better serve their customers while embracing new ones. For example, advances such as blockchain can help your business ensure more secure, trustless transactions. AI can pinpoint key insights into your customers’ needs, allowing you to translate those insights into actionable strategies.

Stay on the edge

The best way for lenders to remain relevant is to embrace change. This may involve the complete upending of their current business model. However, implementing a technology-based, data-driven approach to the marketplace will better position lenders to embrace changes and pivot to achieve the best position for their business.

To watch a presentation I gave on this topic at Oracle Industry Connect, click here.

About the Author:

Andrew MacDowell has over two decades of senior management experience in the credit card industry with Fortune 500 financial institutions such as MBNA Corporation and Bank of America.

Andrew has specific expertise in areas such as Business Development, Loyalty Marketing, Corporate Project Management, Bank Operations, Payments, and Fraud. Most notably, Andrew was a key founding stakeholder of MBNA Canada during its peak growth phase in the Canadian marketplace, which ultimately led to it becoming the largest MasterCard issuing bank in Canada.

Andrew is the product owner of Lending and Leasing as a Service (LLaaS), a DecisivEdge software solution built for small to medium sized lenders.

Andrew is a graduate of Georgian College where he holds a diploma in Business Administration and majored in Marketing Management.

Resources:

  1. https://www2.deloitte.com/us/en/pages/financial-services/articles/banking-industry-outlook.html
  2. https://www.marketwatch.com/story/get-ready-to-share-not-just-the-road-but-the-car-2015-12-14
  3. https://www.forbes.com/sites/bernardmarr/2018/02/07/5-blockchain-opportunities-no-company-can-afford-to-miss/#280719701a83
  4. https://www.pwc.com/gx/en/financial-services/assets/pdf/technology2020-and-beyond.pdf
  5. https://www.inc.com/julie-walmsley/4-in-5-millennials-dont-want-to-share-a-car-this-app-gets-you-an-open-ended-lease-no-credit-required.html
  6. https://www.fair.com/