Embedded Lending for Complete Beginners – Introduction, Business Value, Use Cases, and Potential
In the last few years, the embedded finance market has grown into a global $43bn industry and is expected to reach 7 trillion market value within the next 10 years or sooner. At TurnKey Lender our team has been pioneering the embedded finance revolution for years, promoting the idea that any business can be a FinTech and offer credit products to their clients in-house without outsourcing customer data, relations, and profits to a middleman in the form of a bank or an alternative 3rd party lender. In the last year the embedded lending trend has been taking over the business world. Its adoption is boosted by the forced digitalization of millions of businesses on the lookout for new ways to convert clients, retain them and ultimately make money and stay profitable in the digital-first economy. In this article, we will give a quick introduction to the world of embedded finance for newcomers and anyone starting to consider adding an in-house buy-now-pay-later option, implementing credit lines, or other model of consumer credit to their operations. But first, wanted to check if you (or your staff) would like this white paper with a guide to offering pay later financing to your customers in-house and at scale. What is embedded lending and why should your business care about specialty finance options? Embedded lending is an approach in which a non-financial business implements in-house customer financing into their operations. This leads to them becoming a specialty lender, someone whose main business does not come from extending credit but who nonetheless offers it and uses it not only as a monetization tool, but mainly to grow their business and reach wider consumer groups. As a business owner, allowing your clients to pay for your products or services in multiple installments is only natural and what consumers expect today. But in the 20th century, banks and other specialty lenders effectively monopolized credit as the world was quickly globalizing and credit decisioning had gotten a lot more complex. This hurdle had been too hard to overcome for a non-professional lender up until recently. The current state of financial technology and ready-made loan origination systems allows any type of business (be it retailer, insurance provider, telecom, clinic, auto dealer, manufacturer, etc.) to offer in-house financing to their clients directly removing the need for using third parties providers. For a business, embedded finance or e-lending is the new trend which may get even bigger than e-commerce and with solutions like TurnKey Lender it can be even easier to launch and run than an online shop. At the same time, the customer can enjoy a consistent user experience, build an ongoing relationship with your business, and allows the client to easily build their credit history. Embedded lending comes from the idea that credit should not be viewed as a separate product provided by a different business, it can be natively embedded into the operations of the business. The only challenge is that in the digital age, you need an intuitive, flexible, and powerful solution to handle originating the finance, making automated credit decisions, charging payments from the client on your schedule and processing data for reporting and analytics. The goal of embedded finance with modern software platforms is to create a seamless experience for the borrower so they do not feel or even realize that they engage with a separate platform when they apply for buy now pay later or other credit products with your business. In short, embedded lending allows a business to: Lending Models Most Commonly Used When Embedding Finance Into A Business Today any business that sells products or services which may be hard for clients to pay for upfront can and should consider implementing embedded lending. Of course, embedded finance comes with a certain overhead, so you do need customers of a certain size to make sure the return on investment is worth it. But with innovative digital software like TurnKey Lender’s, most specialty finance providers don’t need dedicated lending staff and the learning curve is low. You can see the featured customers of TurnKey Lender and case studies here. Some of the most popular models for embedding finance into a business include: These are just some of the model’s businesses commonly use, but on a high level, embedded finance is just allowing a client (B2C or B2B) to get a product or service at once and pay you back over time. And the terms that work for you depend on the business logic you prefer and that will work best in your industry. Embedded finance emplementation options At a high level, there are 2 choices when it comes to a way of implementing and running an embedded lending operation. 1.Delegating credit to a lender – Either a bank or buy-now-pay-later providers such as Klarna or Affirm allow business owners to use their checkout options without any need to manage lending program and its terms which means no control over a client’s data and no added profit to your business. Lenders then instantly repay the business owner and handle collections and relations with your clients on their end. 2. Implementing a lending program in-house – A custom lending solution is too complex a project and there is no need to take on such an expense as the modern lending platforms provide enough flexibility, configuration freedom and scalability to handle pretty much any kind of business requirements. For example, TurnKey Lender offers AI-powered end-to-end automation of embedded finance and hundreds of businesses in 50+ countries use it to digitize credit. Capabilities of Embedded Finance Platforms Some of the r capabilities for embedded credit providers include: Here’s an example of how your embedded financing process can look like with TurnKey Lender: Final Insights Embedded finance is on an undeniable rise and each day new businesses like yours will join this trend which will generate over $200 billion by 2025. This article is a quick introduction to embedded lending. If you are interesting in seeing how this
Business loan application process powered by TurnKey Commercial
Business lending automation has never been this flexible and easy-to-use. Neither for the lender nor the borrower. In this demo we’ll show how TurnKey Lender Commercial and how your borrowers will interact with your new platform. Everything you see during the demo is fully configurable from your dedicated backend and is fully white label making it easy to brand to your needs. 1. The borrower chooses the business credit product. Business lending starts with commercial credit products. All the common business credit products are preconfigured, and you’ll be able to launch new loan products in a matter of minutes. You can use them as the basis for your own programs or create new ones from scratch. Once the credit product is published, it instantly works on the front-end. 2. The borrower indicates the required loan amount, terms, and sources of income. Once the system receives the user’s personal details, it can start the analysis. Depending on your process, the loan decisioning can be fully automated, or all the insight and data can be passed to a credit officer for manual review. Before we proceed, wanted to check if you (or your staff) would like this document with a detailed guide to automating all parts of the commercial lending process. 3. The borrower provides business details and documents. Every industry and jurisdiction has requirements for the data lenders need to collect and process. Luckily, in the 50 countries we work in, TurnKey Lender hasn’t found a lending process it wasn’t able to handle. As you can see, the platform allows borrowers to add documents that increase their chances of approval on better terms. It will process these documents based on the criteria you set. TurnKey Lender’s proprietary self-learning decision engine studies borrower’s behavior, financial statements, credit bureau data, and other reports to ensure good terms for the borrower and low risks for you. To achieve accurate credit scoring and high level of lending automation, the platform integrates with bank statement providers, credit bureaus, payment systems, e-sign, your accounting system, and much more. Our team can provide you with extended assistance in setting all those up, so you’re never alone in this. 4. Once the borrower has provided their extensive business details and uploaded the supporting documents, they can review terms&conditions, complete the captcha, and apply. 5. At the same time, the borrower receives the borrower portal activation email. They onboard the web portal to track loan progress, supply additional files if needed, communicate with your team, repay the loan and apply for new credit in the future. 6. The loan decision is made, and funds are deposited to their account. Many lenders use the fully automatic loan decisioning process in TurnKey Lender. But you can also set business rules that send loan applications to manual decision process. In this case, your loan officer gets all the data and insight we have on the borrower and their business in an easily consumable form. It is that simple. TurnKey Lender offers the first ever one-stop SaaS for commercial lending automation. It’s the only lending automation system you’ll ever need. Book an intro call today.
Maximizing embedded lending ROI – how to enter 2024 equipped for point-of-sale financing
Credit at the point of sale is an elegant and obvious idea that technology has only now become able to automate confidently. Empowered by embedded finance platforms, the Pay Later market is expected to top $1 trillion in 2026 – an eleven-fold increase over its standing in 2019, say industry experts. Dmytro Voronenko, CEO and Co-founder of TurnKey Lender recently held a keynote at the BNPL Asia event. In it, he summarizes the pay later phenomenon to date, breaks down the challenges facing both creditors and embedded lenders, as well as regulatory pushback and most likely future scenarios. Dmytro condensed his insight and experience of the subject in the speech and since we know how our readers appreciate the gold nuggets of pure knowledge, we’ve prepared an ultra-consumable format for you. But first, wanted to check if you (or your staff) would like this brochure about TurnKey Pay Later – our solution that will help you automate any kind of embedded financing project. To start, here’s Dmytro’s overview of the pay later phenomenon in the current economic climate and what new market players need to know before entering it. It’s clear today that the embedded-lending revolution is here to stay because it brings business owners Some business owners to this day discard BNPL as one of the feds that will go away soon. Well, adoption stats say otherwise. Online or in-person, 60% of consumers have used a Pay later service, according to C&R Research. Indeed, it’s hard to pay for anything these days, particularly online, without encountering an offer to make payments in installments via PayPal Credit, Afterpay, Affirm, Klarna, and other processors. And among pay later users, 45% report borrowing to fund purchases at least once a month. In particular, millennials and younger consumers are firm in their preference for BNPL over credit cards. And on the B2B front, pay later strategies have emerged to flatten seasonality and other friction points, making pay later capabilities increasingly popular among business-equipment providers and other B2B vendors. And here’s just how much of a differentiator embedded finance can be for product and service providers. Of course, BNPL isn’t a silver bullet, it’s a tool that can help your business grow if you do it right. The key benefits business owners get from running BNPL in-house are as follows. Which leads us to the question: how do you embed pay-later lending into your business to maximize returns and not just have another costly tool to maintain and manage? For the longest time, classic Buy Now Pay Later providers were dominant in consumer finance because the technology was too expensive and complex. It makes sense that as technology develops, credit moves to the point of sale and the need for third-party lenders diminishes. But at the same time, the need for specialized finance skyrockets. We can see the implications of embedded tech in Shopify. Millions of successful brands around the world trust the e-commerce giant to sell, ship, and process payments for their wares and services. The company’s gross monthly income — its own sales, not its clients’ — went from $40.9 million in 2018 to $98.8 million in 2021, an increase of 142% in just four years. Because of all this front-office activity, Shopify knows more about its clients than business banks and other traditional lenders will ever know about theirs. Over time, the e-commerce provider’s insights into its clients’ sales cycles — including inventory levels, supply-chain expenses, and seasonality — can be used to predict how much credit its clients will need, and when they’ll need it. In this view, Shopify’s 2016 move into commercial lending makes more sense than ever — and, as that unit gathers steam, it should raise concerns on bank boards the world over. But before we start setting up your TurnKey Pay Later platform, is BNPL even the right choice for your business? If you do want to offer payment options to clients, the first choice to make is this – will you partner with a BNPL lender or will you do embedded finance in-house? TurnKey Lender automates all kinds of lending and BNPL businesses all over the globe. Dmytro uses this insight to summarize what benefits you stand to gain from running BNPL in-house. And here are some of the amazing businesses that run successful pay later programs for their clients in-house, using TurnKey Pay Later platform. You may be thinking: “But how can I, a retailer/manufacturer/service provider compete with banks and lenders on their home turf?” Well, we get that question a lot. Here Dmytro explains why embedded lenders can adapt to marketplace changes way faster than traditional lenders The key to understanding why it’s time for embedded lenders to take the lead is that the customer’s needs and expectations have changed and we have to adjust too. BNPL automation platform that gets it done To summarize, BNPL credit is going to take over a bigger part of the lending space and product and service providers need to at least consider it. Simply because their competitors will sooner or later. To maximize the results of a pay later program, it’s better to operate and manage it in-house and for that you need a flexible yet highly automated lending platform. We’re talking something as easy to use as Shopify or WooCommerce. At TurnKey Lender we work a lot with consumer and commercial BNPL providers worldwide. And having automated all possible kinds of pay later programs, we’ve released TurnKey Pay Later, our ultimate solution for B2B and B2C BNPL providers. 1. Grow your revenue Pay later is here to stay. It’s been proven to help companies grow their margins and revenue, convert more customers, flatten income seasonality, adds a new monetization source, and allows for nurture of an ongoing relationship with the client instead of faceless one-time exchanges with a merchant (aka customer loyalty and lifetime value). If your business doesn’t offer it, you’re just missing out because the
9 Things SMEs Look for in a Commercial Lender in 2024
As lending niche entry barrier lowers due to the development of FinTech, competition grows. Big banks have established names and loyal client bases going for them, and alternative credit providers keep improving user experience, simplifying onboarding, and lowering interest rates. That leaves new lending market players in a tricky position where they have to compete both among themselves and with the big banks. But with the right groundwork, outperforming banks and your fellow alternative lenders is possible. Our team has worked with alternative and traditional lenders for decades. We have seen every tactic in the book: what approaches work and what simply doesn’t bring the expected ROI. That’s why we’ve decided to go over the most important things that will help borrowers make a decision in your favor. Flexibility of plans A huge chunk of lending operations targets the same market segments within the SME niche. And the thing is that different small to mid-size businesses need different things. They may be looking for SBA loans, bad credit loans, secured loans, unsecured loans, long-term business loans, and whatever else you can think of. [download] As a lender, you want to offer a variety of products to your clients to make sure as few as possible get lost in the conversion pipeline. In addition, these products need to work pretty much on autopilot, without extensive human involvement. What you want to do here is to put together a list of credit products you are willing and capable of providing. Then you do thorough competitor research. You need to take apart your rivals from the business, marketing, sales, and growth perspectives. Make sure to also take into account your local regulators who won’t stay idle as you conquer the market. This means that from the getgo you need to build your product lineup with a compliance blueprint in mind. We go into more details on how to take care of that here. [related-solutions] Developing and launching a new credit product takes time and effort. And in today’s day and age you got to also offer all those products digitally. So in addition to thinking through all the details and workflows, you need to take care of making your business digital. And if you have to create the software infrastructure for each new product from scratch, delivering a product suite to help every one of your potential borrowers gets really hard. That’s where TurnKey Lender’s all-in-one lending software comes into play. The platform comes with a list of major credit products built-in and is flexible enough to meet the specific needs of your business. Feel free to check out the comparisons of TurnKey Lender automation to its closest competitors, nCino and Cloudlending. Fair interests based on advanced evaluation techniques In the end, what matters to a borrower is the interest you’ll charge them. This one also is quite a pickle. As a new business you need to hurry to make a profit: you have paychecks to cover and utilities to pay. But should your interest be one-tenth of a percent higher than that of the competitor, you run a high risk of losing the lead. So how does one offer better interest rates than the market average: Smaller operational costs: you can’t pay your employees less than the competitor because the market will take them away from you. So the only valid way to achieve the reduction of operational expenses is to automate everything that doesn’t require human creativity and analysis. You’d be surprised to learn what percentage of lending operation’s workload that is. For example, AI-powered lending automation by TurnKey Lender improves operational efficiency on average by 275%. Considering the fact that we’re talking about bi-weekly or monthly expenses here, I don’t have to tell you how big of a deal that is. Loans issued at lower risks: now, risks are harder. Lending game is all about the risks you’re willing to take as a loan issuer and the borrower trying to convince you they are reliable and can be trusted with a lower rate. TurnKey Lender has got you covered here. Namely, the part of our system that is responsible for loan origination and decisioning. We put together a credit decisioning engine that is powered by deep neural networks that learn about the types of clients each lender has and adjust over time to approve more of the safe loans faster, based on the behavior of your previous clients. Your competitors will most probably be solely relying on the client’s credit scores they get from a credit bureau. TurnKey Lender went an extra mile to help you deal with risks. Our software takes into account traditional and alternative data sources and analysis approaches and runs them through our proprietary machine learning algorithms. There can be no risk-free loans. Just as there will never be risk-free insurance. That’s the whole point of the two industries. TurnKey Lender reduces risks to a minimum helping you weed out the vast majority of unreliable borrowers and letting you make informed decisions of who to fund and what interest to charge considering the business’ risk score. You’ll see that quickly that will be the sole most important metric you rely on in your credit decisioning. [related-solutions] Easy application Technology makes people more impatient by the day. Users who’re used to getting what they need in minutes won’t tolerate a lender that makes them go through a tedious application process. Consider making the first contact with your business easy. Don’t force the user who’s just researching your offering go through a 20-step application form. You just need to get the basic details from them and once they are on your hook you’ll be able to get everything else. The application form within the TurnKey Lender platform is fully customizable. So you can collect exactly the borrower data you need at any point. Narrow specialization Observing the market for as long as we have, you start to see tendencies. And one thing is very clear. The businesses that try to please everyone at the
In-depth Guide to Digital Lending Cybersecurity in 2024
Interpol reports a 569% growth in malicious registrations, including malware and phishing, and a 788% growth in high-risk registrations. And it’s just the ones that were detected and reported. And since the trend toward the migration of businesses online, the potential for increased financial benefit will see cybercriminals continue to ramp up their activities and develop more advanced and sophisticated techniques. For many companies, digital transformation plans have been radically changed and forcefully quickened by the remote-first policies of the Covid crisis. And when digitalization is forced, many cybersecurity holes can be overlooked and can lead to data loss, breaches, or even a takeover of the lending automation system. Given the sensitive nature of the data lending operations collect, process, manage, and store, ensuring bulletproof cybersecurity is one of the cornerstones to build the foundation of a digital lending business on, to gain trust, and be a reliable partner to the borrowers. Today’s lenders contend with credentials stuffing, phishing attacks, ransomware, spyware, keyloggers, worms, and compromised accounts every day of the week. There are so many diverse threats, and so many high tech security solutions, that it can be difficult to determine the best tools for your business. Lender best practices in cybersecurity include both tried-and-true techniques as well as cutting edge technologies. The goal is to protect your customers’ personal information along with your business data using a combination of physical, electronic, and procedural safeguards that meet all applicable federal, state, and international regulatory requirements. And if cybersecurity isn’t on your agenda, as a digital lender, you may be missing out on what’s going on on the web around your business. And if at some point you believe that your lending operation is impregnable, then your early warning system may not be working correctly. Remember that it takes an average of 69 days to identify a breach. Unfortunately, consumers often are not aware their information has been compromised until they start to see signs of identity theft on clients’ accounts. Fraudsters generally use the information for credentials stuffing. This is a criminal activity where automation software attempts to access other accounts owned by the same customer. They do this by recycling the same user name and password combination on other websites. Measures to combat most common cybersecurity threats Only a large-scale bank with enterprise resources has the capabilities to develop and maintain a proprietary competitive lending automation system. With the development of lending technology, that becomes similar to creating your own e-commerce engine, instead of using some ready-made alternative tailored to your needs. It’s near impossible to keep up with cybersecurity threats in-house even if you have a dedicated department for the development and maintenance of the software. TurnKey Lender’s end-to-end lending processes automation platform has received the SOC2 Type II certification, the standard operating procedures of the company are strictly audited for organizational oversight, vendor management, risk management, and regulatory oversight. A SOC 2-certified service organization is appropriate for businesses whose regulators, auditors, compliance officers, business partners, and executives require documented standards. SOC 2 Type II is considered to be the most reliable certification to look for in a potential service provider’s credentials and proves the system to be designed for secure storage and operation of sensitive data. Other than all the cyber-security best practices, to improve AML, KYC, as well as risk assessment, for every loan application, TurnKey Lender conducts bank statement analysis, credit bureau checks, network and cybersecurity checks, application data checks, as well as a list of configurable decision rules. As a lender, you have to counter hacking attempts through insecure interfaces and APIs, borrower identity theft through two-factor authentication, lack of cloud security architecture and strategy, insufficient identity, credential, access and key management, money laundering attempts, configuration and inadequate change control, account fraud, and any number of ever arising new security threats. The key approaches to get a hold of the customer and business data used are credentials stuffing, phishing attacks, ransomware, spyware, keyloggers, worms, compromised accounts, etc. Fortunately, most attacks can be prevented by ensuring borrowers and employees follow basic rules for their password security and two-factor authorization, and the measures taken by the lending automation platform you use. For example, all of the above is addressed in the TurnKey Lender platform and the security features can be tailor-fit to each particular creditor. TurnKey Lender also applies face and document recognition, integrated into the loan application workflow. The borrower takes a photo of themselves and their ID, and our system will analyze and cross-reference the two. When creating a loan application, the borrower can take a photo of themselves with the built-in camera of their device or the webcam. Many lenders require borrowers to attach a photo to the loan application (optionally you can request photos with a form of ID for even greater security). CYBER SAFETY, DIGITAL LENDING BEST PRACTICES At TurnKey Lender we’ve identified six cyber safety best practices that should be part of every lender’s playbook: Build a solid foundation Turn staff into cyber warriors Detect fraudulent loan applications Prevent account takeovers Identify cross-device use Analyze borrower data Use two-factor authorization Deploy a cloud-based lending platform. Feel free to download the whitepaper we wrote around creating a cybersecurity playbook here. Cybersecurity disaster recovery plan outline The purpose of the Disaster Recovery Plan (DRP) is to maintain the continuous operational capacities for all systems powering your digital lending operation. For every business, recovery plans after an attack differ but here’s a high-level overview of what we do in case TurnKey Lender. In Turnkey Lender we use data centers and server hostings worldwide to prevent loss of any customers’ data. The DRP we apply is universal and applicable for all systems based on Turnkey Lender software platform. The DRP must be executed in the event of the collapse of the system caused by technical, natural, or human-made disaster. To maintain the capability for the fastest recovery TurnKey Lender: Saves all the source code for the software on both local and remote hosting
Setting up automatic loan origination process that meets your requirements in 2024
Loan origination is what makes or breaks a lending business. It is also the most challenging part of credit because it’s where you can avoid most of the risk by doing most of the analysis. The only way to learn about a borrower and evaluate the risks of giving them money used to be having branches in every little town, originators and underwriters working with borrowers in well-ventilated cubicles. The exuberant cost of maintaining such an operation is exactly why for the longest time only large-scale financial institutions could afford to offer consumer, residential, and commercial loans at scale and locally. But as commerce was changed by digital platforms like Shopify, WooCommerce or Amazon, now lending is getting democratized. With providers like TurnKey Lender, the credit industry entry barrier is lower than it has ever been, and anyone can extend credit to their borrowers or clients without extensive overhead. TurnKey Lender is an industry-leading provider of intelligent loan origination software (LOS) that can be tailored to your business logic and will automate every part of loan origination, underwriting, risk management, and borrower evaluation. Before we go any further, wanted to check if you (or your staff) would like this in-depth white paper that goes over the capabilities of our Loan Origination Software? The work that used to require hundreds upon hundreds of work hours can now be done on autopilot with minimal supervision of a few people in intuitive interfaces who are backed by machine learning algorithms that keep on reducing risks the more you lend. What does the modern loan origination flow look like? Borrowers have come to expect a certain level of digital experience, and financial institutions have long been some of the slowest to respond to the new usability and design trends. Mostly because of the tons of outdated legacy code that is powering conventional lending businesses. If you’re running a digital lending platform of your own based on proprietary tech, it’s simply unsustainable. With each new credit product and each new request, the codebase will grow, with each employee that quits, the knowledge of the system will get lost, and the bugs will keep on crawling out of every corner. Therefore, when you open an account with a big bank, more often than not their app and website look extremely antiquated and unintuitive. They are simply overwhelmed. That is why a SaaS (software as a service) model for loan origination software is by far the optimal choice for all types of lenders entering the digital market. It means that a team of developers, analysts, designers, testers, and managers is constantly working on analyzing the digital market trends, looking for optimal solutions, developing new features, and updating existing functionality and design. When a lender tries to do that in-house, they practically must run a separate software business just to support their main business. It doesn’t work that way. The optimal digital loan origination process as of now is as follows: When you’re considering a loan origination system for your business, keep in mind the following elements which are often a must-have. Loan origination process with Turnkey Lender Standard TurnKey Lender Standard is the most intelligent and easy-to-use software that can automate the entire lending process just as well as its specific parts. And LOS is the most powerful and the most important part of that system that includes the amount of proprietary artificial intelligence and configuration freedom that often shocks clients. In a good way. The Standard Loan Origination Software by TurnKey Lender is an iterative SaaS which is regularly updated. It’s easy to deploy and use both for the staff and the borrowers, the feature set is based on the most common workflows, use cases and requests we’ve received from lenders in 50+ countries. It’s a powerful automation platform that would’ve been impossible to create just a few years back, no matter how much money you were willing to spend. Now TurnKey Lender makes this bank-grade intelligence and functionality available to all lenders democratizing access to finance, eliminating human error, lowering overhead and credit risks, helping you serve your clients best, and allowing to compete with any other creditor on a level playing field. The TurnKey Lender Loan Origination Software includes the functionality for loan application creation, terms and schedule management, as well as bank and contact details collection. The fully configurable loan application process allows for creation of custom application flows, dictionaries, and loan offers, as well as supports disclaimers and document templates management. Learn more: TurnKey Lender Standard Platform Capabilities (With a Bonus White Paper) As is necessary for the lending space, loan origination in TurnKey Lender ties in natively with Underwriting and Credit Decisions, transferring data between the workplaces and other employees. This allows for one to make accurate loan decisions powered by machine learning and deep neural networks processing enormous amounts of data. Learn more about our AI-driven decisioning, underwriting automation, and data used to make the best possible loan decisions in the white paper. Loan origination flow with Turnkey Lender Transformer The mathematical majority of lenders have similar processes and Standard will suit their needs perfectly. But the truth is that most credit funds and most borrowers are served by large-scale lenders with complex and unique business logics, custom credit products and one-of-a-kind decision flows. This is what Loan Origination powered by TurnKey Lender Transformer gets you. With it, everything described in the Standard section above holds true, but Transformer can be enhanced, reconfigured, and adjusted to meet even the most complex requirements. TurnKey Lender Transformer is a platform that consists of proprietary no-code tools which TurnKey Lender team will use to build a unique loan origination, underwriting or credit scoring solution for your business. Not only will it be better than what any other software provider can create for you based on your business requirements to a dot. It will also be configured and deployed faster, granting you the best time-to-market. Learn more: TurnKey Lender
Non-Profit Lenders Want — and May Need — to Demonstrate Their Impacts on the Communities They Support
Along with increased funding for underserved communities further disadvantaged by the coronavirus pandemic and its economic impacts. Black workers suffered record job losses early in the public-health crisis — and have been disproportionately exposed to ongoing risk of Covid infection as “essential workers” — a threat that extends to immediate family members, according to the Economic Policy Institute. For one lending-technology pioneer, Dmitry Voronenko of TurnKey Lender, efficiency at the point of funding is essential for what he calls “full-spectrum compliance.” In this view, “there’s compliance around what must be done, and compliance that’s enhanced through keeping meticulous track of a funding operation, down to every decision at every juncture,” he says. “The result is unprecedented visibility in aid of long- and short-term development goals.” But this isn’t just feel-good stuff. If, as some community developers urge, the federal government starts taking a harder look at how its funds are spent to bolster communities that are genuinely in need, advanced lending software could hold the key to Voronenko’s broader view of compliance. Numbering about 1,000 throughout the US, CDFIs are lending institutions committed to extending financing and related services to people in economically distressed communities. In structure a CDFI can — but doesn’t have to — be a loan fund, a bank, or a credit union. Whatever form it takes, a CDFI may be supported by the CDFI Fund, which was established as a Treasury Department agency in 1994. Since then it has been the source of some $2 billion in community-development grants, and tax credits attracting $54 billion in private-sector funding. Learn about TurnKey Lender’s CDFI Lending Software and become a tech-enabled mission-driven lender with the fastest possible time-to-market and proprietary AI powering instant loan decisions. Why outcomes monitoring needs enhancement Late in 2020, Congress boosted funding for CDFIs through the Treasury with particular emphasis on supporting CDFIs that support minority communities. This focus is needed. For example, Mississippi, the poorest state, sees just 17% of CDFI-backed mortgages go to African Americans — in a state where African Americans account for 40% of the overall population. The 2020 legislation “was a major step toward positioning CDFIs to tackle long-standing gaps that limit opportunity, assertive action is required to ensure that the funding achieves the desired results,” Bill Bynum, CEO of Hope Credit Union in Jackson, Miss., writes in the Hill. “The Treasury Department is currently taking applications for the largest pot of funding for CDFIs in recent history — $9 billion made available through the Emergency Capital Investment Program” — an initiative that’s “projected to generate up to $90 billion in lending by CDFIs, and leverage substantially more in indirect investment.” “Treasury has an opportunity and responsibility to make the Biden-Harris administration’s commitment to lifting communities of color real,” says Bynum. “Doing so will require investing in CDFIs that close, rather than widen, opportunity gaps.” For Bynum and others immersed in community development, this approach represents “the only way to ensure that the people and communities hit hardest by the economic crisis receive the relief they so desperately need.” While regulatory compliance is already complex for lenders, seeking to create enhanced operational visibility around policies and procedures in support of best practices around community-development funding can require approaches that are even more nuanced. Here’s a seven-step program suggested by Voronenko, CEO and co-founder of TurnKey Lender, intended to shed more light on funding activity for hard-pressed CDFIs. 1.Map the touchpoints where consumers interact with your business A CDFI’s interaction with CDFI-funding applicants starts with CDFI’s marketing, then continues into the application, credit review, approval (or not), funding (if approved), and continues through ongoing communications, reporting, and repayment. In this way, the CDFI can not only be on guard against fraud; it can provide a detailed account of fundee type and outcomes. 2. Assign ownership, and fund the program With the map drawn, CDFIs can turn to issues of internal “ownership.” To this end, assign a point person — one with executive authority — to “own” the tracking of outcomes and usage. Ownership in this sense sends positive signals to applicants, fundees, regulators, and partners in community development that the CDFI in question takes responsibility for outcomes. 2. Determine appropriate guidelines for your funding operations This is vital to determining appropriate business and revenue models as well as marketing efforts, product design, workflows, and even underlying technology platforms. Looking outward, CDFIs should understand expectations and requirements around the funding it does with respect to community needs, and the types of applicants in search of funding. 3. Publish policies and procedures Documenting and publishing allocation policies and procedures ensures every CDFI staffer understands the importance of such policies and procedures as well as their individual tasks they need to perform to administer the program responsibly. Ideally, “a CDFI’s policies will include a standards overview along with a manual of procedures,” says Voronennko. 4. Launch the compliance program Once you’ve determined to track outcomes, there will be nothing same-old about a CDFI’s funding activity. So look at your enhanced transparency as a new product launch. Think like a marketer and create a campaign that uses verbal, video and print channels in a series of integrated communications to bolster training as well as internal and external awareness. 5. Monitor and update compliance blueprints on a regular basis While outcomes tracking for purposes that fall short of regulatory compliance aren’t likely to require as much ongoing oversight to ensure adherence to the new guidance, software designed for such rigorous oversight will keep CDFIs from straying off policy as conditions on the ground change. “And of course because tweaks must be made from time to time, it’s worthwhile to keep staffers informed and properly trained,” adds Voronenko. “Monitoring on this level could prove vital as the economy responds to the slow retreat of the coronavirus pandemic.” 6. Leverage software and outsourced resources An oversight program, whether it’s about regulatory compliance or a lesser standard, can be expensive to develop, launch, and maintain. That’s why regtech software, and/or an outsourced compliance consultant, can be cost-effective solutions for many CDFIs. Leveraging third-party resources can boost a CDFI’s oversight, improve process
Top 10 trends in digital lending for 2023
This is a column by Dmytro Voronenko, Ph.D. Digital lending keeps rapidly evolving despite the soaring cost of capital accompanied by geopolitical and economic turbulences. There remains a huge growth potential for innovative lenders. And in this transformative time, it’s more important than ever to understand what trends will drive and affect the digital lending industry the most in 2023. Resilience and efficiency via automation. Businesses will continue to cut costs and look for efficiency improvements. This will put in-depth lending process automation on top of their agenda. Embedded lending will break into new business verticals. Segment-focused, niche players will use their unique customer data and context knowledge to offer unmatched financing terms and experience. Digital banking transformation will be moving full steam ahead 2023-2024. The next two years will be the last window of opportunity for financial institutions to become digitized easily. Those who lag during these next two years will lag forever. A new wave of <My Brand> Pay Later. New major brands, especially those with ample treasuries and distinguished customer bases, will create their own version of Apple’s ”Pay Later” for added revenue, increased market share, and bolstered brand loyalty. New types of players from other industries will enter the embedded lending arena. Next year we will see a rise in non-bank lending, including in-house customer financing, and the introduction of installment payment plans from other industries. Telecoms, payment processing providers, manufacturers and others will quickly gain massive traction due to alternative borrower data, huge customer bases and the viral nature of unique offering in demand. Increasing competition for prime segments. As the competition for the shrinking prime borrowers’ segment keeps increasing, lenders who make it easiest to borrow by understanding borrower’s context better will win and increase their market share in prime segment. Start of the “AI everywhere” era in digital lending. AI will be more widely used not only for credit scoring but for borrower behavior understanding, pro-active credit products promotion, lending process automation, portfolio rebalancing, staff performance monitoring, risks appetite adjustment, real time decisioning on every stage of a loan life cycle. Rise to power for ESG credit (Environmental, Social, and Governance). New business models will focus on green lending, socially responsible financing, and environmentally friendly project financing. It’s an unavoidable market response to the demand from society and government for such economic transformation. New “normal” of high cost of capital. Cost of capital remains high with Fed Funds Rate most likely hitting 5% at the start of the year and remaining 4.25% or above till the end of 2023. 2024 will most probably see a bit lower rates but nowhere near the “free money” situation lenders experienced in 2020-21. This affects all lenders and pushes them toward business transformations, rethinking existing business models and value creating chains. A wave of mergers, acquisitions, and buyouts. Delinquency rates and charge offs will keep growing in 2023 with a significantly cooler demand, especially from the consumer segment. Many fintechs and lenders will be forced to look for an exit via merger or acquisition, some will go bankrupt. Inevitably, private funds will acquire a good number of high-quality but capital-limited fintechs and lenders.
Introduction to Factoring & Invoice Financing for Your Digital Lending Operation
Running a small business is hard enough as is. But the reality we live in is such that in addition to the challenges of finding customers, paying rent, controlling quality and delivery of goods or services, one has to deal with the fact that more or less 60% of invoices are paid late. The idea behind factoring and invoice financing is to give a helping hand to businesses that struggle with this issue.
How to manage AML and KYC as a digital lender in 2024
If you’re just planning to enter the digital lending market, regulatory compliance may seem like an insurmountable hurdle. But it’s not. In this in-depth guide we’ll break down what you need to know to safely become a digital lender and unlock the improved retention, profits, and client returns. The key terms you will hear in connection to compliance are KYC (Know Your Customer) and AML (Anti-Money Laundering). The short explanation would be that AML is the overall governance framework aimed at preventing money laundering and other crimes. While KYC is a set of processes and tools within the jurisdiction’s AML framework. But to work with those regulations one needs to know a little more. Specific regulations and compliance laws differ by country but the good news is that modern lending management systems come pre-configured for easy export and formatting of reporting data and allow for automatic direct data communication thourgh an API integration. That said, let’s dig right in.
White paper: the ultimate BNPL guide for B2C and B2B companies
By 2025, the global BNPL industry will grow 10-15x its current volume — topping $1T in annual gross merchandise volume. Both B2C and B2B businesses have noticed that despite any pushback, BNPL quickly becomes a must-have payment option. And more entrepreneurs each day realize that it’s better to control this monetization and retention tool instead of letting a third-party lender get all the fruits of their client-converting labor. But starting to offer pay later option is a new challenging venture for most product and service providers. We’ve written this in-depth research to help you navigate this space in an informed manner and avoid the mistakes business owners commonly make. This white paper is for three types of people. To make sure every one of you finds the information they need in this piece, we’ve divided it into three major chapters – Intro to BNPL, B2C pay later, and B2B pay later. Table of contents Intro to Buy Now Pay Later Letting your customers pay for products or services in several installments if they can’t afford to foot the bill in one go is an idea that has been around since the invention of money. Up until recently, it was almost impossible to offer Buy Now Pay Later consumer credit at the point of sale unless you are a bank or a large alternative lender. The reason being – it used to be too hard to accurately evaluate credit risk and even if you had the capacity for it, underwriting took too long. Times have changed. Traditional lending done in person through banking branches is riding into the sunset and working with credit digitally is swiftly becoming the new norm. And when a conservative space goes digital, the entry barrier into this space gets lower. Customer expectations and online comfort standards are formed by the Ubers and Amazons of the world. And despite their best efforts, most traditional lenders can’t address the current demand for a low-to-zero-interest point-of-sale pay later options. This creates an enormous market gap for affordable, seamless, and secure customer finance. See supporting data in the Buy Now Pay Later adoption statistics section. In the past, you needed immense resources and expertise to start and run a lending business. Now technology has made credit more democratic than it has ever been. Any entrepreneur can partner with a lender like Affirm or even have their Pay Later program automated and running in-house. Which in our, slightly biased, opinion is a lot better. The most obvious potential beneficiaries of the rise of BNPL are B2C and B2B product and service providers that want to implement a Pay Later program of their own instead of outsourcing lending profits and benefits (like loyalty, retention, and control) to a third-party lender. You may be a retailer, equipment manufacturer, healthcare provider, renovation contractor, airline, or any other company that sells a product or a service that you would sell more of if people could pay in installments. But first, wanted to check if you (or your staff) would like this white paper on how to offer financing to customers in-house
Getting started with buy now pay later in the B2C space – crucial choices and how to make them
Now that we’ve covered all the basics of the BNPL industry and automation in our buy now pay later guide, Let’s dig deeper to enable you to make the right decisions for your business when implementing a pay later functionality operation. What we’ll cover But first, wanted to check if you (or your staff) would like this in-depth BNPL white paper with all you need to know to launch a digital lending operation. The difference between B2C and B2B buy now pay later programs B2C and B2B pay later processes, while similar in many fundamental aspects, differ drastically in credit scoring logic and automation needs. As you can see, the B2C segment needs a quick-to-deploy and easy-to-configure universal solution which will work in a variety of industries by default. B2B segment often requires additional features, custom integrations, and unique configuration to fit their business logic and specific customer profile. In this article, we’re taking a closer look at the B2C pay later space, also known as consumer finance, point-of-sale finance, embedded lending, in-house lending, and many other aliases. Why offering buy now pay later options is a must for a B2C business There are millions of businesses that already do and soon will offer their own pay later options to their clients. Retail, healthcare, professional service providers, manufacturing, renovation, etc – anything a consumer may want to pay for in installments. Most of these businesses went through an expedited digital transformation process in recent years which wasn’t easy. At the same time: Giving clients an affordable and accessible installment plan addresses these problems. With pay later options you can still charge a fair price for your product while making it affordable for the client. According to data from Klarna, one of the biggest BNPL credit providers, implementing a pay later program leads to: That’s already good. But it gets better when you do it in-house. This way you remain in control of the customer journey, control the pay later program terms, and keep lender’s recurrent fees, etc. But we’re getting ahead of ourselves. It’s also important to mention that for most of these businesses, income is seasonal and stable cash flow is…challenging. Receiving payment installments predictably throughout the year helps you plan ahead and strategize. Partnering with BNPL lender vs launching a consumer financing program in-house Once you’ve decided to offer pay later options to your clients, you will need to choose: In a nutshell, when offering pay later was hard, involving a middleman made sense. But now that it’s easy – it doesn’t. But let’s look at this question a little closer. How did we end up here? Short history of consumer financing and where it is going At first, only large banks could afford proprietary digital lending technology developed and maintained by floors of their staff. Then lending tech became a little more accessible and FinTech BNPL startups were able to afford and maintain solutions for B2C business. Now, digital lending technology is easy-to-use and affordable enough for businesses to handle it themselves, without a third-party lender at all. For a while, consumer-focused BNPL options were dominated by fintech startups like Klarna and Affirm. During the pandemic, their capitalization skyrocketed fueled by a unique market position. But now, not a month goes by without a major BNPL controversy indicating that one-size-fits-all approach to point-of-sale credit doesn’t work too well. But the clients already expect to have a simple point-of-sale credit option. And with modern lending technology, there’s no reason why this credit should be provided by a third-party and not the business owner. It’s not to say that there is no place in the lending marketplace for traditional lenders, BNPL specialty lenders, and in-house pay later providers. All it means is that lending technology becomes more affordable and accessible which makes the lending market more competitive, which historically leads to better service or product for the client at a fairer price. Why business owners choose and then leave BNPL lenders Many small to mid-size businesses start out in pay later with BNPL lenders because of the plug-and-play nature of the deal. But once the business starts to grow, they start to notice that not controlling the pay later process is costing them a lot in fees, in disappointed clients, and in lost sales. Problems mentioned by business owners who partner with large BNPL lenders include: If you’re a product or service provider, partnering with specialty lenders to offer pay later is just sharing your business with someone else. It is natural to feel anxious about competing with large financial institutions. It’s their business, they have the expertise and the resources. Cost-effectiveness of keeping BNPL in-house vs using a third-party lender You may reasonably ask: “Doesn’t doing it in-house entail higher maintenance costs, staff expansion, acquiring lending expertise, etc.? And that’s the right question to ask. Automating lending in-house is an added expense that needs to be worth it. And its monetary value grows drastically with scale. But so does the amount of money you lose when you delegate pay later to a third-party lender. Here’s a simple exercise: How do I automate my BNPL program the right way? To compete with large-scale BNPL providers, you need to focus on the benefits you can provide and the risks you can alleviate. ConsumerFinance.gov released a report that indicates key benefits and risks of BNPL for consumers: Modern digital lending technology provides you with enough flexibility and pre-configured functionality to stay agile and offer your clients a better deal and a better experience. Automating and running a pay later program with a platform like TurnKey Pay Later is similar to introducing any other new SaaS platform to your staff. TurnKey Lender team will set up the solution, onboard your team, conduct all the necessary performance, security, and technical tests to make sure the platform works now and long term. In your admin back office it will look like a modern SaaS tailored to your business. It does most of the