The digital revolution in the finance industry will continue with open banking and cloud systems, says Kristofer Rogers of software-as-a-service banking platform Mambu – and the most successful brokerages and lenders will be those that use the most innovative technology.
When you reflect on 2020 and the impact the pandemic has had on Australia’s financial services landscape, it’s clear that the only constant has been change. Faced with economic instability, job losses and an uncertain future, COVID made us all sit back and take stock – of our health, our career aspirations and our finances – ultimately improving our financial literacy and making us more adept at controlling our financial health.
Adding to this improved level of financial literacy, Australians now entering the workforce and taking out loans are the third generation of digital natives, with digital literacy at an all-time high. This generation has never experienced life without mobile devices and instant connectivity; they expect to be able to manage all of their financial affairs at the click of a button or the swipe of a screen.
As we navigate the ‘new normal’, the most successful brokerages and lenders are those using the most innovative technology solutions to rapidly respond to shifts in customer expectations in a constantly changing landscape and ultimately win new customers.
Here are three key tech trends that will define the Australian lending market in 2021 and beyond:
Trend 1: Loan origination will be reinvented with open banking
Open banking is a regulatory initiative launched in mid-2020 that enables consumers to share their transactional history with trusted third-party providers. This customer-initiated data access allows lenders to extract transactional history in real time and instantly create an applicant’s profile based on spending behaviour and income. All of this is done without having to upload payslips or bank statements, drastically reducing application processing time.
Lenders such as Bendigo and Adelaide Bank, with its Tic:Toc home loans, and emerging disruptor Athena, are lauded by younger Australians for the ease and speed of their loan applications. Typically, a 100% digital application can be completed in under 60 minutes using real-time intelligence.
In 2021, we can expect to see open banking tools being adopted more widely to offer this seamless digital application experience. Some will take it even further; – for example, providing customers with ongoing financial wellbeing insights, such as balance checks prior to a repayment being due. Innovations like these will improve collections and avoid the unhappy path of dishonoured payments.
Trend 2: Ecosytem approach will create amazing customer experiences
Another challenge many lenders face is how to make all their existing systems work together to provide a seamless customer experience. Many adopt an end-to-end solution, looking for something that does it all – from onboarding and customer ledger to payments and even customer communication. However, the big challenge is vendor lock-in. While you may want to develop the best possible origination experience, you are ultimately tied to the limitations of your provider. Unplug one component, and it all comes undone.
An ecosystem which handles integrations with current systems and emerging capabilities allows the use of best-in-breed technology. And while this involves more integrations, it requires fewer resources, as new providers offer software-as-a-service (SaaS), an on-demand provision where your software requirements scale as you grow and when you need it. With SaaS, all updates, maintenance and releases are the responsibility of the provider, not the lender. Research and advisory firm Gartner predicts that the service-based cloud application industry will be worth $143.7bn by 2022 – a level of growth that will shape SaaS trends in 2021.
So the year ahead will see continued adoption of SaaS for the financial services ecosystem, empowering lenders to choose the most appropriate and scalable solutions for their unique products and achieve critical points of difference in an increasingly competitive space.
Trend 3: Core banking and lending platforms set for change
Throughout 2020, lenders found themselves having to pivot rapidly and help customers handle financial hardship due to the pandemic. It often proved impossible to deliver speed to market because of the limitations of their legacy technology. We therefore saw challenger banks and new lenders increase their market share by responding quickly, without being limited by their core banking technology.
The year 2021 will be when many legacy systems approach the end of their life cycle, and businesses will have a chance to better position themselves for continued change by exploring new technology, such as cloud platforms that provide speed and agility while retaining the same high level of security and robustness.
Several industry sectors have already been disrupted by tech innovation, including telecommunications, travel and entertainment. In the months ahead, the financial services sector can expect to see the same impacts.
Ultimately, as open banking comes of age, there is now a level playing field for the big banks and non-bank lenders to adopt this new technology to better compete.
General manager Australia and New Zealand, Mambu