2018 Lending Outlook — Top 5 Trends, Part Two
This is the second part of our outlook for the upcoming year in lending. In the first part we have discussed constantly changing regulations, regulatory sandbox, and improving customer journey. Now it is time to talk about data-driven decisions and cybesecurity.
Fintech Software Fuels Data-driven Decisions
Well managed data can improve the efficiency of our decisions as well as the quality of our decisions, especially when it comes to credit scoring and application approvals.
As lenders we often have more data than we can comfortably manage. It’s one of the downsides of the information age. Our databases contain customer profiles, account activity and transactional information. We can access customers’ social media pages to gather additional behavioral and attitudinal information. And we can purchase supplemental information from proprietary databases like credit scoring agencies.
Our biggest challenge is harnessing the power of this incredible volume of data. It takes sophisticated software and trained analysts to translate these data points into actionable intelligence that supports customer-centric new products, smarter credit decisions, and improved operational processes.
One of the best ways for lenders to use data for better decisions is during the credit approval process. LaaS platforms make it easy to automate the application process for customers and to automate the decision process for lenders. Advanced credit scoring methodologies with machine learning capabilities provide faster, more informed decisions that improve portfolio yield. Plus alternative credit review options score prospects with thin credit, which increases the number of approved applications.
LaaS platforms make small to mid-size lenders, as well as local community banks and credit unions, compete more effectively when every socio-economic level is migrating towards a mobile-only lifestyle. It’s especially tough for community banks to compete in the digital age when their financial technology is lagging behind the bigger institutions. Fully managed, turnkey lending platforms and fintech software packages are an efficient and cost effective approach to stay relevant with the needs and desires of their community.
Cybersecurity Is Here To Stay
The global emphasis on cyber safety is not a new trend. However, it will continue to be a top priority as long as cyber criminals exploit Internet security gaps for personal gain or for terrorist causes. Two areas we’re watching in 2018 are European General Data Protection Regulation (GDPR) and blockchain technologies.
Over the past few years the focus has shifted from criminal prosecution to corporate prevention as law enforcement fights a losing battle against hackers. Lenders have been hit hard with severe penalties when their data was breached, which makes sense when we consider the volume of data we gather and the highly sensitive nature of this information. Financial firms like Equifax were big news last year; but software, healthcare and retail were also prominent targets. Intel may be the Equifax of 2018. Three class action lawsuits have already been filed against the technology giant, due to delinquent disclosure regarding their chip security vulnerabilities.
It’s good business to protect your customers’ personal data, because a single breach could bankrupt a small to mid-size lender. That’s why Gartner, Inc. has projected corporate spending on information security will increase to $93 billion in 2018.
European General Data Protection Regulation (GDPR) will go into effect in May of 2018. In our global economy these new rules will have a worldwide impact, because they affect every company that shares information with any business based in the European Union (EU). This reach includes vendors like data processors and credit scoring agencies located in the United States, Asia, Russia or South America. Gartner, Inc. predicts half of all companies under the GDPR umbrella will be out of compliance, and the penalties will be harsh. Under the new rules the fine for a serious data breach could be as high as 4% of annual global turnover or $22.5 million, whichever is greater.
Blockchain is more than the cryptocurrencies it supports. It may be the next cyber safety solution with far reaching utility that’s already being used to administer smart contracts and prevent voter fraud. Blockchain as a technology is a decentralized digital ledger that tracks transaction activity based on distributed ledger technology. This fragmented orientation delivers a higher level of security when compared to a conventional centralized database, because there’s no single point-of-entry for hackers to exploit.
Financial enterprises are going to need this higher level of cyber safety to keep pace with complex new product features. The technology already exists that would allow a consumer to submit a loan application and make their monthly payments while they do the laundry or cook dinner, just by talking to a voice-activated device like Echo or Alexa. It’s just a matter of time before Millennials and Generation Z demand implementation. And Amazon Lending is primed to deliver. They’ve already issued more than $3 billion in loans to more than 20,000 small businesses.
When We Look Back at 2018
In this article we identified five trends to watch in 2018: changing regulations, regulatory sandbox, data-driven decisions, friction-free customer journey, and cybersecurity.
These trends were discussed in isolation, but in reality they’re often interrelated and interdependent. For example, the regulatory sandbox helps new financial products manage changing regulations more efficiently. And fintech software fuels data-driven decisions, reduces process friction, and improves cyber safety. Thereby delivering a better customer experience, and differentiating your brand in the financial marketplace.
When we look back on 2018 it will be interesting to see which lenders improved their competitive position by staying on top of these trends.