In 2015, digital transformation and disruption in the financial industry were at the forefront as never before. The reason is rather simple - fintech is booming. The volume of industry funding doubles every year in nearly every country. However, fintech seems to be a too broad term now. If we start filtering out the sectors of the fintech companies, we can clearly see that lending is actually the fastest growing market and receives the largest fundings. So what is the reason that makes online lenders so successful?
Business model
Lending is actually quite an old concept and the way online lenders make revenues now is not any different from the way lenders used to profit centuries ago. Throughout the time there were people in need of funds and there were individuals (or corporations) willing to finance such people and that’s exactly how payday loans, peer-to-peer lending and other types of lending function nowadays. What’s more, banks still have quite a large share in lending despite lots of fintech lenders coming out, yet why are the consumers more willing to actually take a loan from an organisation that exists only a few years?
Importance of customer acquisition
Sometimes the reasons for choosing one product over another are actually related to the product itself. Its pricing, quality, usability, functions and so on. However, in most cases the qualities of the product do not contribute as much to the success as the correct customer acquisition process. Designing an intuitive, well-tested and a fast process of selling goods or services is what really drives revenues. Internet marketers worked this out in the 90’s. Online lenders base their business models on this right from the beginning. Banks, on the other hand, are just starting to understand the importance of it.
Customer acquisition in banking
Banks are much more product-oriented than process-oriented. When it comes to acquiring clients, a bank would usually do a limited time offer that is a slightly better than the ones available at competitors, create a few ads portraying happy families using the product and then spend a few millions for loud advertising. The formula seems to be that simple. After the campaign has expired, a bank will hold on for a few months to assess the impact. However, within this activity there is no actual connection between the bank and the consumer.
Customer acquisition in online lending
Online lenders have actually fought hard for their market share. Not only such companies start with no active database of clients, but also the budgets can often be limited. This is why lenders tend to focus on the process rather than the product. A payday loan provider that charges 225 % of annual interest and has only 8 fields in its form may certainly do better than another provider that issues loans with 170 % interest rate once 12 fields are filled out.
In other words, online lending is not about offering better product than your competitor. It rather is about offering a better experience of obtaining the product.
The comparison
People might think that tracking customer’s behaviour over the Internet is much easier than offline due to the massive amount of tools one can use. But isn’t it amusing that a company that has never seen its client knows more about its behavior patterns than a bank that serves the same client for decades? I believe that it all begins with the vision and the attitude towards the services. While banks are mostly focused on developing their product and then on distributing the general message about the product, online lenders try to serve the information about the product to the right people, at the right time and to the right place.
Data availability
Even if banks have access to full client data, they hardly use it. It is nearly impossible to see a bank offering certain customised offers at the place that is visited almost daily - its Internet banking portal. However, while conservative banks have been taking clients data for granted, forward-thinking banks, online lenders and other fintech companies started using banking API to offer services better, faster and fully online.
About Konstantin Rabin
Konstantin has taken part in various projects in the European financial industry for the last 4 years. Currently Konstantin is heading marketing at Kontomatik - a European developer of bank API. In addition to this, Konstantin often publishes articles on finance and technology on key websites.
About Kontomatik
Kontomatik is a provider of Banking APIs. The service supplied by Kontomatik is mostly aimed for banks with competitive products, online lenders that are looking to optimise loan-issuing processes and start-ups that want to build their app around supreme technology. Online credit scoring, instant KYC and contextual financial offers are the key benefits supplied by Kontomatik, yet the main service is the provision of a tool that lets an organisation become a true innovator in the financial industry.
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