We know banks and traditional lenders are being disrupted by the rise of financial technology innovations. But how about an online lender vs. another online lender? Or a modern CDFI against another modern CDFI? Here are some quick, fun, short scorecard items to keep in mind.
1. Your lending engine is up to date, both on the customer facing side and in the back office.
Names aren’t important, but you would be surprised at how many large lenders have loan management software and back end systems that are so antiquated, it’s like pulling the curtain behind the Wizard of Oz. You’ll find that duct tape is used to hold all the pieces together. It sounds harsh, but as an industry, financial technology has been years behind for a while. Well its catching up, and lenders will need to quickly embrace up-to-date back office systems.
There are quick ways to know if a change of system or technology is warranted. If your loan management software is limiting your lending strategy (and therefore, your competitive advantage), then it’s time to upgrade. If all that is holding you back is the money and other resouces you have invested in your current system, then it’s time to upgrade (remember, making decisions on a sunken cost is a fallacy).
So stop pulling an Oz, and update your back-end systems. Your new system should be able to do your forward-thinking lending strategy with ease.
2. Outsourced vs in-house is done right.
We can take queue from business books and acknowledge you shouldn’t outsource your competitive advantage. But in the world of lending is a moving target, albeit, a slow one. So when you are deciding whether your loan servicing should be done internally or externally, think about what your competitive advantage is, and what it should be. Think about what your core competency is, and what it should be and adjust accordingly. Keeping that in mind, there are few skills you should have in-house, which leads to the next couple of points.
3. User experience and user design are front and center.
Online is the new battlefield. The only way to develop and maintain your competitive advantage is to move from outsourcing website design (and therefore your online user design) and develop internal competency. In other terms, get a user design intern (usually an industrial design student) with the intent to create and develop an in-house user design and user experience team. This may seem to be counter-intuitive, but keeping your online image “front and center” will assist in the active management of the ever so important online marketing channel.
4. Data science is a core competency.
You have an amazing algorithm that promises to minimize delinquencies and maximize revenue. That’s great! But your ‘secret sauce’ should be ever changing and evolving. The idea that you should use all the data you have available to improve your lending operations is obvious by now and that’s where the fairly new ‘data scientist’ position comes in. A data scientist should be able to collect and analyze all the data you collect internally, then tie it in with external factors to tune your originations, servicing and collection operations. In other words, it’s the guy (or gal) who puts big data to good use.
5. You have a strong automation core.
At the heart of modern lending practices is a good system that both integrates (brings divergent systems together) and automates. A strong system will simultaneously lower your overhead and variable costs, as well as helping you create a lending model that can scale. The only question you have to ask is: Where do I start?
It’s worth mentioning that with software-as-a-service option available for loan management software, any lender, no matter how small, can start leveraging automation without incurring the costs of hiring additional staff.
6. Technology is a core competency.
This point is obvious once you realize that in order to tie in user design, data science, and automation, you’ll need to have a really strong grasp of technology. Databases, web application development, API integrations, and security should be well understood by the decision makers in the company.
7. You’re focused on your customer, not the competition.
Looking at the competition as a source for inspiration is like looking at the rear view mirror while driving. It’s only good at telling you the road you’ve been on, not the path you need to take. Focusing on the customer as the source of your lending strategy inspiration will shift your perspective to what you can do in order to be the best option to your customer.
It’s not just an ideological view either. In the financial world, both American Express and Capital One are prime examples of great focus on the customer.
As I mentioned before in my “Top Lending Trends to Watch” blog post, money, and therefore lending, is a commodity. You’ll need much more than competitive rates to stand out.
8. Hire smart creatives and A-type players.
No amount of great business strategy can help if you don’t have the right team to execute it. You should have a team of highly (self) motived, smart, technical, and creative employees to execute and improve upon your strategy.
In a world where Zappos, Amazon and In N’ Out have developed a competitive advantage in part due to their excellent customer service, you can’t dismiss the idea that empowering employees, even in the customer service department, can pay off. The days of outsourcing as a means to lower costs and improve performance are gone. The industry is changing, and you’ll need to be on your toes, which means having the right team by your side is a key component.
Note: The idea of a digital scorecard for lenders came from Bret King’s post Digital Bank or FinTech? Sorry, you’re not a Digital Bank.
