MonJa's Digital Banking and Lending Monthly Roundup | January 2020

MonJa’s Digital Banking and Lending Monthly Roundup | January 2020

In Commercial Lending, Industry News, Small Business Loan Underwriting, Underwriting Automation by Yulia GnatyukLeave a Comment

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MonJa’s Digital Banking and Lending Monthly Roundup – Why Subscribe?

Digital banking and lending is evolving rapidly. Recent fintech-banking partnerships and innovation in technology with the introduction of AI, ML and blockchain herald a new era in lending. Fintech’s are changing the competitive ecosystem,  empowering lenders to process loans faster and smarter.  In a world full of noise, understanding how the technologies and developments may impact your financial institution’s credit decisions and credit portfolio is of critical importance. With MonJa’s Digital Banking and Lending Monthly Roundup, it’s easy to stay up to date on what’s happening in the space. Get the latest updates, analysis and commentary on digital banking and lending segment!


MonJa's Digital Banking and Lending Monthly Roundup | January 2020

The Swedish ‘buy now, pay later’ fintech unicorn, Klarna has raised an investment of USD 200 million from the Commonwealth Bank of Australia (CBA) for its launch in Australia. Klarna allows users to make a payment in four equal installments. The investment has increased CBA’s shareholding in Klarna to 5.5%, up from its initial 1.8% stake.

The House Financial Services Committee will hold the first part of the two-part hearing titled “Rent-A-Bank Schemes and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps”. The first part of the hearing will discuss how regulatory policy should govern loans across the states.

Fair Isaac Corporation, whose FICO scores form the bedrock of personal lending is changing the way it calculates the credit score of an individual. As per the new rules, people who take personal loans might be evaluated negatively. It will treat personal loans as different from auto, mortgage and student loans. Earlier, taking personal loans via outstanding credit card balances was a positive/neutral event. In reality, a borrower was just shifting the debt without actually paying the debt. The new credit standards are likely to benefit the consumers who make consistent, steady progress in reducing their debt over time.

Online lenders are taking innovative and sophisticated security measures to fight against fraudsters who are disguising themselves as loan applicants. These loan applicants attempt to mislead the digital lenders by submitting fabricated photos, manipulated video or pictures of property and assets. According to a study by LexisNexis Risk Solutions in October, fraud attacks on digital lenders has increased by 8.2% during the past 24 months.

MonJa's Digital Banking and Lending Monthly Roundup | January 2020

The United States lags behind Europe in terms of Fintech adoption. The Europe regulators have supported Fintech growth by lowering barriers. For example, the U.K.’s Open Banking regulation requires high-street banks to share consumer data with authorized Fintech providers. Similarly, under Europe’s Payment Services Directive 2, the banks are required to create application programming interfaces (APIs) and other tools to enable the customers to share data with third parties. These standards and regulations are currently missing in the United States. 

Fintech ventures have an edge over the traditional banks in terms of technology and changing paradigms that helps them to offer new products and better services, enhancing the customer experience. The millennial generation in particular distrusts the banking sector and is opting for Fintech options for tailored offerings. The alt-lending sector in particular has been a revelation. P2P lending eliminates the need for a middleman (the bank) and matches the borrowers directly via peer to peer lending platform. 

The Fintech industry has witnessed an acceleration of large acquisitions and funding rounds over the last few years. Major players such as PayPal recently acquired the online coupon site Honey for an estimated USD 4 billion. Visa’s purchase of Plaid for USD 5.3 billion and Charles Schwab acquisition of TD Ameritrade worth USD 26 billion confirms that fintechs are looking at major consolidation. In 2019, the challenger banks raised over USD 3 billion and are gunning for the lending business of traditional banks.

The Buy Now, Pay Later (BNPL) Minneapolis based company, “Sezzle” has been approved by the California state’s Department of Business Oversight (DBO) and granted a lending license. The company’s application was previously rejected by the Department last month on account of “illegal unlicensed lending” in the US. The license will now allow Sezzle to offer its credit service directly to the customers, eliminating the merchants from the process.

The Fintech sector has revolutionized borrowing in United States and resulted in expansion of credit by utilizing alternative data. Alternative data is supplemental data which enables to better predict a consumer’s credit worthiness and leads to a more inclusive and resilient system. The Consumer Financial Protection Bureau released statistics according to which 27% more applicants were approved for credit than traditional credit scoring model; which yielded 16% lower average APRs for approved loans. The adoption of alternative data will lead to fair lending and protecting the integrity of the financial systems.

With the big tech companies like Apple, Facebook foraying into the financial services, banking by 2030 could look very different. In 2019, Apple launched Apple card with Goldman Sachs and Facebook announced Facebook Pay. Several other big tech companies like Amazon, PayPal, and Stripe expanded into small-business lending. The banks are also entering into partnerships with various fintech firms which is set to multiply as other banks look to enter into the digital lending space. The industry is set to witness tough competition between the banks and fintechs. If you don’t have deep pockets, the best strategy would be to partner rather than to compete alone.

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