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

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

The US peer-to-peer lending platform, LendingClub, recently found that more and more of its customers are prioritizing the repayment of their personal loan than their credit cards in the Covid-19 recession period. About 77% of the respondent customers of LendingClub’s personal loan program reported being under financial stress (despite high income and credit profiles). The Company’s research showed that customers’ idea of (financial) peace of mind was linked to three main parameters: being able to pay off their debt for good (46%), being able to worry less about money (24%), and being able to retire comfortably (17%).

Cross River Bank recently reached an astounding mark of $250 million deposits in just 15 days! The Company partnered with Mantle (an account-opening software firm) to grow the consumer deposit to reach $20 million in deposits in a month and $250 million within six months. They did reach the $250-million mark, but instead of 6 months, they reached it in a mere 15-day period. While its rate (2.25%) surely attracts new customers, an important piece in Cross River’s success map included quick underwriting of the new accounts while remaining in compliance. Post-target, Cross Rover has lowered its CD rate but still managed to raise another $30 million in the next 16 days.

The standards for mortgage eligibility in the U.S. have often been questioned for their biases against minorities like Blacks, Hispanic, LGBTQ, and others. But technology can democratize the mortgage market by eliminating the need for having human underwriters. Fintechs lets prospective borrowers assess their financial feasibility for a mortgage without having to go face-to-face. However, with technology comes another risk. Algorithms may not be all that free from biases given the underlying limitations such as developers’ lack of legal knowledge. Meanwhile, digital lenders say that they assess their customers’ risk on the same financial criteria as traditional banks. But the standard financial protocols have been inherently non-supportive of minorities. Authorities must look to take a new, revised approach to a risk assessment which would require an openness to accepting alternative credit scoring models.

Monzo launched its business accounts (targeting SMEs) early in March this year. Monzo’s business accounts are available in two forms. The Business Lite accounts are free and include basic account provisions such as receipt scanning and web access. Its Business Pro accounts cost £5/month for basic provisions along with add-ons such as multi-user accounts, invoices, tax pots, etc. It acquired some 50,000 business customers, out of which 45% were limited companies, and 55% were sole traders. The online bank’s customer base is known to be quite diverse, ranging from tech startups to all sorts of business owners like bakers, consultants, and even small, independent Etsy dealers.

Less than 50% of the banks and credit unions let customers apply for a loan through a mobile device despite the increase in the demand for such digital services. A report by Boston Consulting Group has identified four main marketplace changes as main drivers behind digital lending: the recent drastic changes in consumer behavior, rapid tech developments, changes in regulations and compliance surrounding digital engagement, and the innovations and simplification of fintech operating models. No traditional credit union can turn into a digital lender overnight. A lender headed that way would need to ensure an exceptional digital experience along with clarity on approval criteria, transparency, innovation, alternative channels, and preparedness for unforeseen scenarios. 

Although their journey to becoming branchless had begun way back in 2014, Alliant Credit Union finally became fully branchless this year with its last two branches’ permanent closing down. With only 3% of customers using physical branches that too only once every 1.5 years, going completely branchless wasn’t something out of the blue for Alliant. Senior VP Phil Salis says “The goal for me has been to replicate the kind of relationship we had when Alliant had branches, but via the phone,”. 

In a recent interview, Simon Powley, the head global advisor consultant for Diebold Nixdorf (leading banking solutions and retail technology provider), pointed out that customers want digital yet simple banking transactions and a customer service that’s interactive. Drawing attention to consider the entire banking ecosystem, he said, “We know that self-service is playing out at the ATM, but whether a branch needs to consider tablet integration, cardless transactions or how mobile technology integrates with their ATM and other channels, I think it’s a major concern moving forward. All these options are important because people want to be safe; they are trying to be safe.” Several financial institutions struggle to prioritize their concerns. Priorities need to be analyzed on the basis of the customer base (for banks) or member base (for credit unions). He stressed the need for all the channels to join forces when it comes to safety and service.

A report by Accenture states payment holidays are not flowing through into consumer credit scores, and underlying business health is being hidden under furlough and PPP. The impact is likely to hit the lenders by late September to early October. Thereon, it will depend on a number of factors like the pandemic situation, Presidential elections, regulations, shareholder pressure, and last but not least, lender attitude. But lenders can still save the day (as some are already doing by offering credit relief) without forgetting that it’s a limited-time opportunity. It is also suggested lenders take a more enhanced and segmented view of nonperforming loans than before. 

With Google Banking catching headlines each day, many see this as an upcoming opportunity for community banks and credit unions. A collaboration with tech giants like Google could immensely improve the digital experience that community banks and credit unions offer to their customers. However, it isn’t exactly the fairytale that it may look like. With looming issues like data privacy (that already trail Google), customer relationships, and the risk of lagging, Google Banking may not exactly be what it is perceived as. Undoubtedly, credit unions and community banks could benefit immensely from a partnership with Google, especially as it would help them offer digital customer experience without having to invest in revamping their tech infrastructure. It could also help them enter the contactless payments market through the installed base of Google Pay users. But the data and control risks that come with it cannot be undermined. 

The Federal government’s curb on the high costs of payday lending has fluctuated over time but never really materialized. The CFBP’s final payday lending rules (made in 2017) added more assessments and limitations. While the new standards to protect customers were cheered by supporters, those against the changes deemed it as an overreach, whereby the CFBP was cutting off the customers from an easy source of loans at a critical time. However, the new CFPB Director, Kathy Kraninger, revoked the ability-to-repay and repeat-borrowing rules. The changes are expected to save small-dollar lenders over $7 billion annually. Meanwhile, some opponents have noted that pandemic is a rather bad time to deregulate this industry.

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