Marketplace lending's impact on the origination experience
Back in the early 90’s I worked with some of the largest credit card issuers to deliver the first instant online credit approvals. I was a young engineer working for a small analytics company called HNC Software (now part of FICO) and we felt we were changing the industry. The days of mailing in your applications or going to a branch to get credit was over – you could now be approved instantly right in your Netscape browser.
Since then, I have been surprised at how slowly the online origination of more sophisticated lending has progressed. Sure, I can apply for a car loan or a mortgage online, but the experience is far from frictionless and in most cases results in an offline closing process. Why is it so difficult to provide instant loans and why has the industry not progressed significantly in the past 20+ years?
The good news is that it seems to be finally changing. Marketplace lenders and early-stage companies working to optimize the loan origination process are raising the bar on the consumer experience. Established players such as Quicken Loans are also introducing new ‘low impact’ products that reduce the pain of getting a loan. These entrepreneurial organizations leverage technology to substantially reduce the information required to decision, price and close a loan by accessing creative new data-sources to fill in the blanks. They also rely on advanced predictive analytics to extrapolate risk and profitability so that less information is needed from the consumer. The result is a frictionless, perhaps even enjoyable experience that can now happen on a smart phone.
I believe this shift in thinking is good for the industry and will ultimately have a positive impact on traditional lenders as well. As consumer expectations rise, all lenders will need to re-think how they attract and onboard customers and the technology that makes real-time, frictionless lending will become more widely utilized across the industry. Ultimately, the winners will be the companies who can deliver a great consumer experience, but who can also best manage the risk and profitability of their lending portfolios. Like most technology transformations, these winners are likely to be a combination of new players who are able to effectively learn traditional banking discipline and traditional companies who can effectively adopt the new technology. Recent news in the marketplace lending space has brought to the forefront the need for a balance between technology and traditional banking acumen.
Twenty-five years later, I am again excited to participate in an industry transformation, now with my own technology company. In the coming weeks I hope to share some of our perspectives on this market transformation and how emerging analytic technology can be leveraged to not only provide a frictionless consumer experience, but ensure that lending is done responsibly and with an eye towards compliance.
Learn more about how Modelshop can help deliver frictionless online lending at www.modelshop.com/lending