The real impact of alt lending

by AB27 Jul 2018

As non-banks and alt-lenders inch towards a greater market share, they pave the way for a customer-centric banking model writes Parth Pandya, CTO at Technobrain Solutions

In the days before the digital age took hold, oligopoly was the norm in the most industries, the face of which was the frustrated end-consumer who typically faced a startling lack of choices. This is certainly not the case any more – not at least in the banking industry.

The rise of non-bank and alt lenders has now been well documented, and the facts are there for all to see. The question is the same as with all trends – will it die out or will it be the new norm?

I for one see the recent trend auguring well for all stakeholders – customers, brokers, alt lenders, and yes, even the big banks. The fact that a majority of these lenders are technology driven and have low fixed costs means they can respond to the ever-changing customer needs at breakneck speed. And this is exciting.

The non-bank and alt lenders bring an agile and open culture into what has traditionally been a change-averse banking industry. Having low fixed costs enables non-bank and alt lenders to charge the customer low fees and present competitive rates. They are also able to deliver personalised loan assessments within continually shrinking turnaround times. The customer needs a compelling reason to not be attracted to these players. Considering all this, their growth is really a no-brainer. But is it here to stay?

The financial crystal ball

Today’s broker is armed with more options, passing them all downstream to the customer. With a wider range of product options and a direct communication channel that allows brokers to meet customer expectations and resolve issues in a timely manner, the entire loan processing cycle is becoming more efficient. And this has become the battle every financial player wants to win. Currently, the non-bank and alt lenders seem be streets ahead of others in this space.

There is tremendous room for growth in this customer-centric model. I see opportunities to expand in the areas of personal finance management, lending and deposits, accompanied by an overall increase in compliance and more automation in ensuring regulatory requirements are met.

The royal commission hearings have come at a good time, forcing the big banks to reflect on their practices while the customer is beginning to reward the ‘customer-first’ approach of the non-banks and alt lenders.

Technology will provide new opportunities, and if the broker channel can grab it with both hands, then we will see a new world order

I see technology-driven innovation initiatives taking centre stage in the near future. Neobanks and alt lenders are already introducing the next generation of core banking products in Australia. They are making investments in open banking and fintech services, specifically in the identification, financial data analysis and aggregation, analytics and AI space, to name a few.

This trend is certainly on a growth trajectory, and I expect an increase in investments. We might also see some acquisitions by the big players in coming years. All of this will benefit the customer, which is exactly how it should be.

How does the broker fit into all of this?

As this trend plays out to its full potential in the future, I see brokers thriving and increasing their influence in the market. They will simply have more choices to create the right solutions for their customers. They will have access to better products, a service offering that is quick and personalised, and the power of more potent systems, which will lead to smarter working opportunities across the entire broker space.

We can already see the impact of digital ID verification, the delivery of secure and trustworthy bank statements, and smarter document collection systems making the broker system more efficient.

However, to fully capitalise on the opportunities, brokers themselves will need to become more technologically savvy. Investing in education and upskilling can present the banking world with brokers who work smarter and not just harder. Brokers have typically spent days on end laboriously inputting data, shuffling through emails for documents, enduring the painful experience of using aggregator software, and – the big one - trying to recover applications that have disappeared into the black hole of their large back-office team.

I expect to see those days behind us as the years pass by. Technology will provide new opportunities, and if the broker channel can grab it with both hands, then we will see a new world order.

The bottom line is that customers are being placed at the heart of the entire financial industry, and key players will continue to grow, posing a challenge to the big banks. There are opportunities galore for the broker channel, and if they are to delight the customer they must stay in touch with the continued advent of new technologies.


Parth Pandya
CTO,
Technobrain Solutions