[Editor’s note: This is a guest post from Raj Singh, Managing Director of AvantCredit. AvantCredit is a gold sponsor and will be in attendance at LendIt Europe 2015 on October 20-21. In this post, he talks about why banks should collaborate with alternative lenders.]
The financial market is still very fragmented and continues to face many challenges. The current environment continues to restrict access to credit for consumers and small to medium enterprises (SMEs) alike. However, that also creates opportunities for alternative lenders and as a result, the sector is becoming much more segmented and more customer service focused.
Until recently, SMEs were unable to obtain loans or gain access to credit because banks were and continue to face many internal and external issues. Banks had no way of effectively mitigating the risk associated with lending more money to SMEs and denied them access to credit. It took a concerted effort from the government to intervene and put pressure on the banks to either lend more or refer customers they chose not to do business with to alternative lenders (ie provide more solutions).
A similar policy geared towards consumers has not materialised but would be beneficial for those who do not meet high street banks’ credit requirements. Middle income consumers are in a similar situation as these businesses. Their access to credit is severely limited. Unlike with businesses, banks are not required to refer these consumers to businesses who may be able to provide them with access to affordable and responsible credit options (ie not encouraged to provide solutions).
There are many instances of responsible, hard working consumers who are still finding it extremely difficult today to access credit from traditional high street banks. They are simply denied because they have less than perfect credit scores even though they have generally been banking with these same banks for years.
AvantCredit, through our expertise and technology (using very sophisticated credit models uniquely tailored to individuals), is providing access to credit to those same customers through unsecured loans. To date, AvantCredit has issued almost $2 billion in loans serving over 300,000 customers globally. In the UK we will have lent 100 million pounds this year and have very ambitious plans through new marketing channels, but also strategic business development partnerships.
We will continue serving a broader segment of customers using complex models and sophisticated techniques to better analyse borrowers. We don’t just rely on a person’s credit history and their annual salary to determine whether or not they qualify for one of our loans. We go beyond the standard parameters used to determine creditworthiness to create a 360 degree profile of potential borrowers. Our process is iterative and allows us to better price and mitigate risks associated with lending.
We will also continue to leverage our robust technology to make the process more convenient for consumers. Our application is entirely online. It is a seamless experience that takes about ten minutes to complete. Compared to traditional brick and mortar lenders, applying for a loan with us is faster, less stressful and offers more clarity. Borrowers can evaluate their rates and terms for each loan option before accepting.
All banks in order to compete – need to further differentiate. The future is technology driven in a changing cultural landscape. Banks still have presence and brand power, strong relationships with customers, lower costs of capital and lots of rich data, but their lending assets are declining.
They should collaborate and do so now because this remaining competitive advantage will continue to erode over time through a more understanding and accommodating regulatory landscape, political pressure, consumer pressure, more alternative lenders entering the sector, innovation, and requirements for banks to open up their API’s. These factors lead to a more competitive innovative consumer market.
Moving forward, AvantCredit will focus on creating strong partnerships while continuing to find new ways to improve the borrowing experience.