As with other areas in banking, we are seeing a significant transformation in lending and mortgages that in multiple ways is reinventing and redefining this crucial area for both existing and new players in the market.
As one of the largest global IT companies providing services and solutions to some of the leading lending and mortgages companies, we have a ringside view of the trends that are shaping this space, by virtue of partnering with our customers in their transformation journeys.
The pandemic has resulted in huge demand for digital lending services that are served through channels that do not rely on physical contact, like on the phone via the contact center, mobile, or the desktop app
Following are some of the key trends that are gaining a lot of traction in the market.
- Anytime, anywhere lending is the new mantra
Until a few years back, two main reasons for lending firms to transform themselves were either to reduce processing times or to enhance the customer experience. The pandemic has resulted in huge demand for digital lending services that are served through channels that do not rely on physical contact, like on the phone via the contact center, mobile, or the desktop app. Customers are increasingly demanding anytime, anywhere digital lending. This has forced leading lending firms to look both outside in and inside out to see how they can best transform themselves. These firms are now looking at technology-based solutions in a new light and innovating across the entire IT landscape to serve customers better. A direct consequence has been the huge uptick in cloud-based services that have now moved from being a novelty to the new normal in such firms.
- SME financing is now mainstream and becoming a priority area for lending firms
One of the most interesting trends we are seeing in the lending space is the huge focus on the small and medium enterprises (SME) segment. Until a few years back, the lenders used to focus more on retail and corporate customers and tried to slot SME customers as small corporates. However, this did not address the specialized needs of SME customers who, after the retail segment, were the largest customer group. Two interesting interventions happened: Firstly, the SME sector caught the attention of fintech firms that started addressing their needs. Secondly, smaller IT Services providers started catering to this segment. This forced larger lending firms take notice and come up with tailored offerings for this segment.
- Huge uptick in Point of Sales finance and Buy Now Pay Later (BNPL) schemes
A few decades back, e-commerce transformed the way customers purchased goods and services. This created something called the online economy, where one did not need to step into a physical store to purchase goods and services. This fundamentally changed the way large companies looked at their B2C business operations. They invested more in the online operations and these operations became profitable on their own. This also resulted in many ‘e’ or electronic/ online stores without an actual brick and mortar presence. As the value of goods and services purchased online increased, lending firms saw an opportunity to become service providers to such electronic stores and B2C firms that undertake huge volumes of online operations. At the click of a button, a customer could convert a purchase into more manageable monthly installments. Now, this practice is extending to physical stores as well, where at the point of sale itself customers can seek and get finance for their purchases. Also, a new trend has now kicked-in called Buy Now Pay Later (BNPL), started by the financial technology firms. Here, the customer has the option to make a payment for goods and services later and not at the till (for physical stores) or at checkout (for online stores).
- Using common lending platforms for optimization
One of the most common observations in large lending firms is that the loan origination process is fragmented between multiple business divisions. This results in several pain points in the loan application/origination and approval process. The first challenge is manual loan processes with limited use of technology. The second challenge is excessive manual paperwork in loan processing. The third challenge is multiple handoffs, leading to delay in loan approval. The fourth challenge is the lack of automation in the credit decisioning stage. Apart from these business drawbacks, there are clear pain points from an IT perspective as well. As different kinds of loans run on different IT systems, the IT application, and infrastructure landscape is not optimized and there are several redundant and duplicate elements. The key to solving these challenges is the adoption of a modern workflow-based development platform based on cloud-native technologies like PEGA and Salesforce.
Hollow the core approach for business agility
Based on our experience of working with our customers in the lending and mortgages space, we clearly see that one of the key barriers to transforming themselves to cloud-native, on-demand and digitally agile business and IT organizations is the investments in legacy technology that they have made over the past several decades. While these technology investments made sense at that time and lending firms derived significant value in terms of transaction processing times, with the passage of time, these technologies became siloed monolith black boxes. While the classic example is mainframe-based technology, but the reality is that even databases have evolved and now cloud-native databases are the norm. What compounds the problem even more is that the technical competence and talent available in these technologies are becoming scarce. Hence, customers are looking for digital mortgage solutions where legacy technologies can be isolated or restricted in functionality and the core processing is done in more modern systems. This transition has also been accelerated by the huge proliferation of cloud-based solutions, modern application development platforms and the explosion of FinTechs in the lending space.
In conclusion we can say that the lending/mortgages business space is at an inflection point. Expectations of the end customers from their providers are rising dramatically. Providers need to up their game in terms of their business offerings and intelligent use of their IT assets and investments to ensure that they adapt to this new normal in an effective way.