[Editor’s note: This is a guest post from MoneyLion. MoneyLion is a Silver Sponsor at LendIt USA 2016, which will take place on April 11-12, 2016, in San Francisco. At LendIt, CIO Pratyush Tiwari will be speaking on the panel: How Do you Expand Credit to the Thin File?]
There’s no question that alternative lending’s first phase has matured. Led by marketplace lenders, the space has benefited from tailwinds from the 2008 crisis, including historically low interest rates and a regulatory environment that initially kept banks on the sidelines. This has resulted in significant and growing volume in originations, not to mention broader brand and product awareness from consumers looking for credit and investors looking for better returns.
It too has meant increased institutional involvement and a movement away from the notion of the bank as a strawman. Traditional banks, offering their own capabilities and efficiencies to alternative lenders, now play roles as originators, investors, funders, securitizers, platform users, partners, and more. So as the dust settles on this first phase, what do we make of the state of alternative lending and how do we then view what it means to be a next-generation alternative lender?
In the personal loan space, we at MoneyLion believe that online lending, to date, has been transactional in nature and thus product-centric. Whereas, the next-generation of lenders will be relational in nature and thus customer-centric.
What do we mean by this?
In a product-centric world, what matters are the terms and dimensions of the fulfillment process. A purely digital loan application experience, transacting in a day instead of weeks, was an important differentiator in the first phase of alternative lending. The same goes for the cost savings that lenders could pass to customers for not having a network of physical branches. And in a world with Dodd-Frank and Basel III, where banks could not meaningfully lend to consumers on an unsecured basis, market-making with retail investors was as important as anything else.
In a customer-centric world, these are expectations. As consumers, we’ve come to expect all three: the instant gratification, the digital-first experience, and the market-making of an on-demand economy. This is both why marketplace lending has become the success it is as well as where the new bar has been set for the customer relationship.
Similar transformations have occurred in other industries. A company like Amazon, who defined e-commerce 1.0, epitomizes this shift. Where Amazon used to exclusively stand for selection, price, and 2-day delivery, it now means a constellation of services that aim to reinforce a customer relationship. Loyal Amazon customers enrolled in Prime don’t necessarily select their retailer based on price anymore; they return to Amazon based on factors like trust and ease-of-use (who wants to enter a credit card?). In a very literal sense and to the tune of $99/year, customers have invested in the experience. This extends to other e-commerce 2.0 retailers, who create a relationship with their customers through exclusive, rather than commoditized, pricing and selection.
What does it mean to be a customer-centric lender? To start, we believe it means thinking more like Apple, Google, Facebook, and other consumer tech companies and embracing delightful user experiences. What inspires the building of these delightful user experiences is likely not a surface-level view of simple loan use cases, but a deep understanding of customers’ financial needs and goals. If the most important person at an online lender might have been a data scientist building risk models, what if for the next generation of lenders, it’s the UI/UX designer or the product engineer?
Nonetheless, the consumer tech companies mentioned above all understand the value of data in delivering these experiences. That much will not change in lending – data will still drive credit decisions, particularly in segments underserved by FICO/Big-Three-Bureau scores. However, we believe truly being customer-centric means going beyond the existing value exchange provided by the lending process. Whether it’s in return for a superior experience or even just for the knowledge that they’re contributing to a community good, customers are willing to provide their data and time if companies can demonstrate economic, social and emotional returns.
It’s an exciting time in the alternative lending space, with lenders and banks working together to deliver superior value to their customers and investors. At MoneyLion, we’re passionate about how data can empower our customers to improve their financial wellness. In that sense, we think being a customer-centric lender is best viewed through the lens of data. Undoubtedly, incumbents and new entrants to the space will continue to redefine in their own ways what it means to be part of the next-generation of alternative lending. Download our app in the iOS App Store and experience it for yourself.
The host of this blog, LendIt, is the largest conference series dedicated to connecting the global online lending community. Our conferences bring together the leading lending platforms, investors, and service providers in our industry for unparalleled educational, networking, and business development opportunities. LendIt hosts three conferences annually: our flagship conference LendIt USA as well as LendIt Europe in London and LendIt China in Shanghai. Visit our home page to register for the next event and to subscribe to our newsletter.
