Fintech Supercharges Lending Innovation For Banks

Since March 2020, lending activity has surged significantly, as borrowers have either expanded existing facilities or sought new liquidity options in response to the challenges posed by the Covid-19 pandemic.

Venture capital investment in lending startups soared during the first quarter of 2021, reaching $4 billion. The number of deals also doubled to 102. Eight mega rounds were completed during this period. The largest deals included:

• Blockfi: A crypto lending platform, which offers USD loans to crypto-asset holders who use their digital assets as collateral, raised a $350 million Series D round.

• Blend: A digital lending platform, which simplifies the application process for mortgages, consumer loans, and deposit accounts, raised a $300 million Series G round.

To meet the growing digital demands of their customers, banks are collaborating with fintech companies to streamline key aspects of the lending process. These collaborations focus on key areas of the lending process, including: customer onboarding, credit risk assessment, due diligence and documentation, and debt collection.

Onboarding

In the lending process, the onboarding stage marks the first interaction customers have, making it crucial for banks to streamline information collection and safeguard data integrity. Leveraging technology, banks can now verify identity, income, assets, and employment through web portals or APIs, seamlessly integrating with CRMs to auto-populate loan applications with customer data. A prime example of innovation in this area is Onfido, a startup that utilizes AI to confirm a user’s true identity by matching their photo ID with facial biometrics, ensuring a swift and secure onboarding experience

Credit Analysis

Credit analysis solutions enable firms to evaluate borrowers' risk profiles using both traditional and alternative data. By expanding their data sources beyond traditional credit scores, banks aim to increase customer reach and expedite the loan approval and funding processes. Innovative credit analysis tools leverage alternative data, such as bill payment history or social media activity, to assess a borrower's willingness and ability to repay a loan.

Innovative use of alternative data in lending is paving the way for greater financial inclusion. By broadening data sources, lenders can more accurately reflect borrowers' unique situations in their risk assessments, significantly benefiting marginalized communities. JP Morgan is among the major banks experimenting with alternative data, like account balances and overdraft histories, to better serve unbanked and underbanked populations. Startups like Esusu are also making strides by reporting rent payments to credit bureaus, helping renters establish and build credit profiles.

Due Diligence and Documentation

Robotic process automation (RPA) and natural language processing (NLP) are key technologies for document capture.RPA automates repetitive, rule-based tasks using software bots that combine automation, computer vision, and machine learning. NLP extracts unstructured text from documents. Ephesoft is an example of a tool that can efficiently process large volumes of documents using RPA and NLP to extract and organize data.

Debt collection

To reduce delinquency rates and shorten loan payback periods, banks are employing innovative technological solutions. These solutions often utilize various communication channels, such as text messaging, to engage with delinquent customers and offer personalized support.

This strategic use of technology is exemplified by companies like Symend, which seamlessly integrate behavioral science with digital communication to manage delinquency and enhance customer engagement.

In loan processing, lenders prioritize access to customer transaction data for informed decision-making and strive to minimize manual reviews to cut costs. Meanwhile, customers seek simplicity, quick decision times, and personalized experiences. A customer-centric digital strategy effectively balances these needs, providing an optimal solution for both parties.

-Kiswana