Monday, January 25, 2016

Digital Loans and Banks: Current Status and Future Predictions

Few years ago I discussed the issue of Banking Channels and Customer Centric in a post titled: The Marriage of Customer Centric and Multi-Channel.

I argued that Customer Centric Bank It services should enable use of the preferred Channel or mixed Channels by each customer.
It looked like more valuable customers preferred Self Service Channels, mainly the Internet Channel.  

A year ago, I wrote another post: Is Mobile Banking a unique Channel?
The bottom line was: It is not yes a unique Channel, however, it is enhancing the trend for usage of Self Service Channels. 
Guess what, more valuable bank's customers prefer this Channel.  

Recently, I read Business Insider's article titled: Digital lenders have a 1 trillion opportunity - this sidedeck has everything you want to know about them.

The article is based upon a research published by Autonomous Research. Autonomous Research is a financial specialist research company. The research notes topic is: the current status and future forecast of the Digital Loans market in USA and in Europe.

According to Autonomous Research research notes, their is 2 trillions USDs opportunity for the Digital Lenders. 
The digital loans originated market volume could reach 100 billion USDs by 2020.

The Challenge
The banks should adapt to a new market: competing with non traditional competitors such as the Digital Lenders.

The Digital Lenders services are consumed via an Internet site. Lending processes are performed digitally.  

Unlike banks, they do not operate costly branches.

They do not have to cope with local banking regulations and international regulations such as Basel III.

They do not have to operate large Data Centers with hundreds or thousands workers. 

The results are:

1. Lower prices than the banks prices.

2. Friendly and easy lending processes

3. Agility
Digital Lenders are a lot more flexible and adaptable than banks. For example, they are able to offer new loans types and P2P loans. 

The issues and possible strategies

1. Customer Centric banking is a necessary condition, but is no longer sufficient.
In order to compete with Digital Lenders friendly lending processes, the banks should support Customers' Channels preferences. The digital channels such as the Mobile Channel and the Internet Channel should be as friendly as possible.

They should also support seamless Channel Integration allowing completion of one Channel transaction by usage of another Channel.

2.Efficiency is a must
In order to compete banks should have leaner and more efficient Information Technology Systems and Infrastructure services.
Hybrid Next generation Cloud could be a partial solution.

Efficiency is not limited to IT operations. The number of Branches should be reduced and Business Processes should be reinvented.

3. If you can't beat them join them?
Should banks invest in Digital lenders and cannibalize their short term profits or should they compete with Digital Lenders?
There is no correct answer to this question. The strategy and the timing could vary.

returning to Autonomous Research predictions
The Digital Loans landscape is changing. Big banks will enter into the market directly or indirectly (investing in Digital Lenders) and Market Consolidation will reduce the number of current Digital lenders.    



  

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