The lending industry is affected by several external and internal forces. The COVID-19 pandemic has caused economic instability across continents, impacting consumer and SMEs’ consumption ability and choices, and thus their demand for unsecured loans. Moreover, it has driven further digitalization of lending services, customer onboarding, and KYC processes even for the more traditional lending providers.
In Europe, increasing regulations such as the interest cap introduced in some countries limits the revenue streams accessible for lenders. Lending companies are seeking new ways to protect the existing loan base and agreements from stricter regulation, while forming new offerings that are competitive in the changing business environment.
Furthermore, emerging fintechs are disrupting the field of consumer and SME lending through advanced technology (AI-based scoring mechanisms, applications relying on open banking etc.), differentiating UIs, and a smooth digital onboarding experience. As digital natives, fintechs often have superior operational efficiency in comparison to traditional players: higher scalability, less legacy, and a smaller overhead compared to established lending providers.
Competition is fierce – best rates and service experience win
Providing customers a fast access to funds is a competitive challenge that both SME and consumer lenders need to solve. SME lending customers, often underserved by established banks, need to access the funds quickly for everyday operational needs, cash management, and business-critical spending. For consumers, who are often more impulse-driven, both the speed of accessing funds and the adequate positioning in merchant channels are key elements of customer experience that differentiate the best lending providers from competition. Both today’s SME and B2C customers have solid capabilities to compare lending options online either directly or through aggregator services.
Thus, lending providers need to acquire new customers in the fiercely competitive environment while maintaining loyalty within the existing customer and contract base. Aside of competitive loan rates, a streamlined onboarding UX with minimum number of steps as well as the capability to provide an instant access to funds are important parts of the lending offering. Existing customer base can be maintained by an attractive offering for returning customers and introducing engaging digital add-on features.
Cards as the way to drive retention and provide faster access to credit
As an extension to loan portfolio, payment cards can support instant funding, smooth access to credit, and increased loyalty for both consumer and SME customers. Card transactions operated in global payment networks are available in real time and standard form for any region and receiver. Issuing payment cards for business or consumer customers replaces the need for account transfers in accessing the credit. This reduces both steps required from credit issuer and user as well as possible delays through bank days required for money transfer. Virtual cards are already an industry standard, and they enable the lending customer to start using the credit for online payments in minutes after the application process is completed.
A card offering can also drive customer loyalty and engagement as well as increase the barrier of switching to another provider. As cardholders, customers are more probable to renew their loans or use other lending products from the same vendor. By introducing a business card and value-adding payments or expense management features, lending companies can motivate SME customers to focus on one loans provider. In the case of peer-to-peer lending, introducing cards also drives growth of the investment base, as cards provide an attractive and effortless access to profits.
Today’s cloud-based card issuing and processing services allow lending providers to design a card solution that supports their business goals and existing architecture. Cards can be either connected to existing loan balances or linked to a separate credit account handling specifically card transactions. A third implementation option is a prepaid account which is topped up based on the available credit: in practice, the lender tops up a prepaid card from the credit line, making funds available at the card account in real time.
Enabling dynamic spend controls lowers the risk level and increases the configurability of the card solution: for instance, by preventing the user from exceeding the credited amount. Additionally, cards can be authorized for only certain transactions with specific merchants or merchant category codes.
As an add-on offering, payment cards are relatively easy to launch for a lending provider: the required card issuing enablers, a credit line, a mobile/web application, and potentially an e-money license are already in place in many cases. Remaining enablers such as scheme memberships are offered at a reasonable lead time and cost by partners. Thus, for instance a combination of a prepaid card with the existing credit line can be launched in weeks rather than months for the first geographical market. Cards enable fast and easy new market entries as well as business expansion through new payments features.
Adding cards to your portfolio enables packaging different credit products into flexible financing offerings and allows the lending provider to increase insight into credit usage. Add-on payments features such as digital wallets (ApplePay, GooglePay), instalments, and revolving credit features enable lending providers to further increase the customer wallet share and application usage. Finally, for some lending fintechs, introducing cards may be the first step of business expansion towards becoming a full digital bank or asset manager.
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