How Lending Automation Can Take the Sting Out of Inflation
With inflation reaching high double digits around the world, businesses in sectors as diverse as retail, health, auto, and capital equipment are wondering how best to handle this sobering development. For enterprises thinking of providing in-house “buy now, pay later” consumer financing on an installment basis, it’s vital to understand the impact of inflation. Like other economic concepts, inflation is a double-edged sword. It allows some borrowers to repay lenders with money that has less purchasing power than when it was originally borrowed (good for the borrower), the higher prices that accompany inflation may increase demand for credit from consumers keen to curtail sticker shock, pulling interest rates higher (to the benefit of lenders, who can lock in higher rates in periods of inflation that may still be in force as inflation recedes). In addition, in times like these, consumers may scramble to secure credit now at relatively favorable terms. Prices rose sharply in October 2021, 6.2% higher than in October 2020. The latest October saw the largest single month-over-month increase since the pre-Clinton nineties, with energy, shelter, food, and cars — things whose prices affect ordinary consumers most — clocking significant increases. If you take out volatile food and energy prices — supposedly because they’re too volatile to track consistently without creating “distortions” — the inflation growth in the 12 months through November 2021 was 4.6%, which is cold comfort to those frightened by rising prices. [related-solutions] How and (maybe) why costs have headed north So what’s going on, and how does it affect you, the business owner? While experts aren’t completely sure, there are several possible contributors, and they’re not mutually exclusive. The so-called base effect kicks in when prices rise off an unexpected drop — precisely what occurred for many business sectors in the first year or so since the pandemic started in early 2020. In this view, the “inflation” in evidence is simply a reversion to the norm. Meanwhile, the global supply chain has been stretched taut by the pandemic. To take just one example, cars are harder to get because of a shortage of computer chips. And this shortage is compounded by competition, as consumers who put off purchasing new vehicles in 2020 jumped back into the market, driving prices higher. Additionally, car rental companies that cut back on inventory early in the pandemic aren’t now selling used vehicles and buying new ones at the usual rate, making for-sale cars and trucks harder to find and driving up their prices. Labor issues have also welled up during the pandemic. In an apparently ongoing process, Americans lost or quit their jobs at unprecedented rates during the pandemic, and employers are having trouble enticing people back now that, in some places and sectors, business has picked up considerably. Compounding the issue, stimulus and higher unemployment payments over the past two years seem to have kept some from returning to the job market. The result? Demand for labor is outpacing supply, and some businesses are cutting hours of operation as a result, creating additional challenges around profitability, and adding yet more helium to the cost of doing business. Meanwhile, buyers are borrowing more, fueled by uncertainty about when (rather than if) the Fed will raise rates. A year from now? Six months? Sooner? Nearly half of banks covered by investment bank Keefe, Bruyette & Woods saw at least 5% annual core-loan growth in the third quarter, American Banker reports — and that’s not counting loans from the Paycheck Protection Program. Also excluding PPP loans, OceanFirst, a community bank in Red Bank, N.J., tells the same source it saw 7% year-over-year loan growth in the Q3 this year. Bankers are also keen to cozy up to industries — like cars, fuel, and staples — because people need them, whatever the price. Banks see these and other industries putting more money into “expansion efforts,” and they want to help finance these investments, further increasing loan demand. Automation applies to tech updates as well Overall, banks see a new inflation cycle as a chance to put customers’ deposits — fatter than ever thanks to earlier stimulus payments — to work for them and their customers in a higher-rate environment. The same holds true for businesses, and those with in-house, software-as-a-service type financing will insulate themselves from the worst effects of inflation. “Working with a SaaS means your provider leads with the technology — understanding, assessing, and implementing improvements to loan automation and functionality on an ongoing basis,” says Dmitry Voronenko, CEO and co-founder of lending-technology provider TurnKey Lender. “We get to work on innovations and improvements immediately because our clients expect it. Some banks and third-party providers can take years to make an update.” Lenders who have to work without the latest in technology have no way to harness artificial intelligence, which helps lenders uncover more about applicants than forms and credit-bureau scores ever could. Inputs on specific, individualized, real-world financial behaviors — spending and bill-pay habits, for example — allow lenders to make better loan-origination decisions and lay the foundation for healthier loan portfolios. Lenders stuck in manual processing are left out of game-changing innovations like AI. Far from advancing capabilities around due diligence and risk mitigation, lenders who can’t look to automation must scramble to assemble documents involving third parties. Artificial intelligence and straight-through processing Where integration isn’t present, staff must repeatedly enter the same information for disparate systems, wasting time and risking costly data-entry errors. Eliminating data re-entry is a top priority for institutions eager to control risk factors. An online application that’s integrated with the lending-system configuration is the starting point for “straight-through” processing that includes automatic “field inputs” for third-party forms, ongoing loan management, and internal analytics and reporting. To benefit from greater operational efficiency into borrower pipelines, lenders are using CRM technologies that aggregate customer information into a complete view of each customer and each loan. This technology helps lenders centralize all customer engagements, accurately report on the institution’s lending pipeline, and track all open opportunities. When you don’t have to assemble, match and then double-check information that
13 Irrefutable Reasons Retailers Are Racing to Provide In-House “Buy Now, Pay Later” Financing
“Buy now, pay later” financing was part of a retail revolution before the pandemic crashed into our lives in 2020. Now, with the economic recovery on everyone’s mind, retailers are more eager than ever to promote sales and retain customers by helping them pay for purchases by installment — the essence of buy now, pay later. Businesses interested in this purchase option, called “BNPL” for short, should first consider what it takes to provide credit to shoppers at any point of sale, real-world or virtual. [download] What is BNPL, and why do retailers and consumers agree it’s a viable option for funding purchases? Worldwide, BNPL financing helped buyers make specific purchases or spend up to pre-defined amounts with a specific retailer, repayable in installments to the tune of about 285 billion in transaction volume in 2018. And that number is expected to hit $680 billion by 2026, for a compound annual growth rate of 13.2%. As enumerated by the Motley Fool in a multiple-response survey conducted in July 2020, US consumers use BNPL for specific reasons: 39.4% to avoid credit-card interest 38.4% to make purchases that wouldn’t otherwise fit my budget 24.7% to borrow money without a credit check 16.3% prefer not to use credit cards 14.4% can’t get approved for a credit card 14.0% have maxed-out credit cards 3.3% I don’t have a bank account For businesses, meanwhile, the trend toward BNPL financing is fueled by: Innovation – Lending-technology makers have improved credit origination and processing with artificial intelligence and dynamic scoring models, in addition to automated administrative functionality Convenience – Credit application occurs right before the actual sale, either at the register, via mobile device, or as a prelude to self-directed online purchases Consumer disenchantment with credit cards – As a means to unsecured financing, younger consumers view credit cards as unfair to consumers, according to PaymentsSource. Broadening acceptance – Consumers and retailers have become more aware of BNPL financing options Though the public-health crisis has put BNPL in the spotlight, it was already on its way to mainstream acceptance among consumers and merchants alike. One marker of this was Walmart’s pre-pandemic engagement with online installment financier Affirm. “Retailers that are keen to offer installment financing at a point of purchase must consider how they want that done,” says Elena Ionenko, co-founder and chief operating officer of lending software maker Turnkey Lender. “It’s a stark choice: either hire a third-party lender to control the whole operation, or run software made and supported by a lending-technology specialist like TurnKey Lender.” Third-party lenders let retailers skip credit underwriting altogether, and they get paid on the spot and in full for financed purchases. But in this approach, everything about the financing is between the consumer and the third party. The retailer is just a middleman. Besides Affirm, names like Square, Bread, and Lightspeed provide fully outsourced versions of “shop now, pay later” financing. But for retailers inclined to retain control of their lending, TurnKey Lender is a major player, with operations on three continents. As a BNPL-software maker, the fintech company equips retailers with advanced, cloud-based lending functionality for financing, in-person and online. [related-solutions] BNPL-software providers stack up the benefits of plug-and-play lending for retailers of all kinds Lending software offers 13 specific benefits to retailers planning to start or streamline internal BNPL operations. Affordability through modularity. With TurnKey Lender, a retailer can start small and add functionality as needed Scalability lets a POS-financing program grow as the business grows Higher conversion rates at checkout via fast and accurate application processing Increased operational efficiency supported by artificial intelligence to enable smart decisions Unique underwriting rules retailers can set, using their own AI-supported decision and control criteria, to terms that are both profitable and safe from a risk-management perspective. Improved portfolio yield from technology that lets retailers optimize portfolio yield by working only with the most profitable customers along with predictive models to pinpoint optimal rates and terms All transaction fees go to the retailer, opening the door to a significant new profit center Client-data integrity and security ensure that customer data isn’t shared with third parties Mobile capabilities ensure secure, on-the-spot service whether the customer is online or in-person IT support and customer service to answer the retailer’s questions in real time, 24/7 Business metrics (via AI-powered analytics) to help retailers get a deeper understanding of customer behaviors and preferences Client-data integrity and security to guarantee customer data is not shared with third parties Enhanced brand loyalty as touchpoints between the retailer and its customers become opportunities for up-selling and loyalty-program enrollment. “Information gleaned from loan applications and credit-bureau scores provide useful information, but it rarely tells the financing applicant’s whole story,” says Ionenko. “But our buy-now-pay-later platform puts AI to work on making more dynamic credit decisions, so that retailers can approve low-risk loans using alternative inputs around budgeting, spending, and other financial indicators to provide a fuller picture of the applicant.” With merchants facing headwinds from a pandemic prolonged by the appearance of variant strains, it makes sense to give customers the option to pay for items over time through BNPL-installment financing. After all, it’s been shown to calm ticket shock, build loyalty, and help retailers close sales.
TurnKey Lender Addresses the Varied Needs of Lending-Tech Users of All Sizes and Types
If you’re waiting for digital finance to become a “thing,” then you’re missing the boat. It became a thing — that is, a service so widespread as to be increasingly expected by customers — in 2020, ignited by social-distancing dictates of the coronavirus pandemic and propelled by earlier technological innovations around two basic problems. 1. Embedding functionality: APIs Application-processing interfaces are bits of software coding that enable applications to work together. An example? The apps on your smartphone. Those software bundles are designed to work with and within the operating system of your handheld device. Similarly, by means of APIs, an embedded financing platform can work inside an organization’s system, sales, messaging, and accounting software to provide the reach and functionality a loan origination system needs 2. Fast-tracking decisions: artificial intelligence The point of automation is to lighten the load for humans. But automation calls for processing, which calls for sorting, which comes down to decision making — which usually calls for human intervention. AI brings its predictive might to the task of narrowing choices down to only the most relevant, sparing people for higher-value oversight and trouble-shooting roles “With APIs ensuring smooth functionality, and AI imposing predictive order on a chaos of possibilities around credit decisioning against a backdrop of accelerated uptake around remote work and social distancing, digital finance is taking off,” says Elena Ionenko, co-founder of TurnKey Lender, a pace-setter in the lending-tech arena. Five benefits of digital lending (for the lender) “And increasingly,” adds Ionenko, “consumers and businesses are alert to the possibilities of ‘buy now, pay later’ financing at just about any point of sale imaginable.” The embedded finance market is worth about $45 billion in revenue this year, according to Juniper Research. Of that, embedded lending accounts for about a fourth. By 2026, Juniper expects that number to top $138 billion, for a surge of 221%. Also noteworthy, between early February 2020, as the pandemic was picking up steam, and late October 2020, media mentions of embedded finance increased more than one hundred times, according to CBInsights. The advantages of digitalization in the lending sphere boil down to five primary benefits. Reducing time to market Reducing the cost of running a lending business Eliminating cumbersome paperwork and unnecessary human error Replacing outdated processes with software that’s customizable to the needs of the enterprise Cutting credit risks with AI-driven credit scoring As implied by “software that’s customizable to the needs of the enterprise,” businesses have different requirements when it comes to lending automation. Some just want the basics: borrower evaluation, decisioning, and funds disbursement. Others want to bolster loan servicing and collections. And some organizations seek automation for the entire financing process with an inclusive box solution. For them, an end-to-end lending solution may be preferable because it confers super-smooth interaction and heightened functionality. The unstoppable rise of peer-to-peer lending Meanwhile, for borrowers, seeking credit from lenders with cutting-edge lending software confers four principal benefits. 1. Faster approvals. P2P lending lives online, so it confers an immediate competitive advantage over traditional lenders when it comes to speed. What used to take weeks or days now takes about five minutes thanks to advanced automation solutions. 2. Lower origination fees. Depending on the lender, origination fees could cost the borrower anywhere from 0.5% to 5.0% of the loan. But lenders backed by industry-standard software, the cost of artificial-intelligence-powered origination have lower overhead costs, which they can in turn pass on to their customers. 3. A shot at a better interest rate. P2P lenders aren’t as heavily regulated and don’t have to fund branch networks compared with traditional lenders. As a result — and as a vital competitive advantage — they typically levy lower pay-back fees. 4. Initial quotes that don’t impair credit scores. Lenders only do a basic search of the borrower’s data, letting the borrower continue hunting for better offers with their original scores intact. These advantages stand out when it comes to peer-to-peer lending — which involves extending credit to individuals or businesses, sometimes as a sideline — is primed for significant growth, fueled by lower operational costs for lenders and broader availability for borrowers. With lower overhead, P2P lending — also known as “social” and “crowd” lending — can achieve higher overall returns by lending money at lower rates than brick-and-mortar competitors. Microfinancing, a type of P2P lending aimed at micro-businesses and startups, is expected to grow at rates in line with that of digital lending as a whole. Valued at $134.4 billion in 2019, Allied Market Research expects the micro-lending market to hit $383.84 billion by 2027, for a compound annual growth rate of nearly 13%. To combat sophisticated and adaptive hackers and fraudsters, P2P lenders and other companies have to be armed with the latest fraud-prevention technologies available. This extends to no-brainers like applicable versions of anti-money-laundering and know-your-customer rules. On the fraud front, an advanced digital-lending platform helps creditors double-check government-issued identity numbers, scan for blacklisted customers, check for bankruptcy, number of active loans, even whether a loan applicant has relatives on staff. When it comes to the security of your customers’ personal information, some digital-lending-platform providers can ensure the protection of information from unauthorized access, loss, or damage while supporting convenience and ease of use for everybody involved. TurnKey Lender, for example, boasts nearly a dozen international security certifications, including the coveted SOC 2 Types I & II. TurnKey Lender: a leader in smart financing technology TurnKey Lender, which operates in more than 50 legal jurisdictions worldwide, also stands out for the rigor of its compliance. To skirt the fintech’s in-depth and constantly updated compliance protocols is to risk regulatory fines, a tarnished brand, and over time, weaker sales. “Even before we founded TurnKey Lender in 2014, our core team was helping businesses automate their lending and banking operations,” says Ionenko. “This background has given us the experience and insight to build a robust and versatile lending platform that meets the needs of lenders of all types in nearly every situation imaginable.” The results of TurnKey’s unique positioning as a pioneering lend-tech maker that operates around the world include: Scalability to meet immediate and long-term business needs End-to-end integrated functionality with a
The State of Consumer and Business Digital lending Entering 2022
Digital lending is helping nonbanks achieve deeper customer relationships, increase revenue, and glean vital intelligence on everything from customer satisfaction and shopping preferences to the impact of marketing campaigns and seasonality. Globally, the digital financing market is set to grow from $311 billion in 2020 to $587 billion by the end of 2025, for a compound annual growth rate of 12%, according to Mordor Intelligence. Online publisher Research and Markets sees a CAGR of 11% for digital lending in the US through the same period. This demand is driven by five main factors. The ubiquity of smartphones and rising internet penetration The advent of technologies around artificial intelligence, machine learning, and cloud computing, Changing consumer behavior and expectations, spearheaded by younger consumers before and since the coronavirus pandemic started Especially for banks and other traditional lenders, the competitive need to adopt these new technologies in the face of inroads by nonbanking, digital rivals Accelerating uptake of digital-financing services by SMEs (small and mid-size enterprises) In this view, the pandemic has been more of an accelerator than a root cause. SME lending software by TurnKey Lender Consumer lending software by TurnKey Lender [download] With help from technology, businesses are natural and obvious lenders Digital lending positions SMEs of all kinds — consumer-facing or B2B — to provide financing for goods and services while retaining control of their lending programs. On the consumer side, digital lenders include: Brick-and-mortar retailers Car dealers Healthcare practices Microfinanciers Online vendors Educational institutions Payday lenders Where businesses are the customers, the specific sectors in play touch almost every economic sector. In fact, almost 80% of US businesses lease or finance the equipment they need to function and thrive. Among the top non-banking industries linked to equipment financing are: Retail and office equipment Manufacturing and industrial machinery IT equipment and software Invoice factoring Farming Construction and off-road equipment Aircraft and drones Learn about TurnKey Lender Equipment Financing Software Digital lending is also making inroads in niche corners of commerce such as business loans derived from community development financial institutions, and trade and invoice financing (aka “factoring”). SMEs are propelling digital financing to new heights for good reason. Nine in 10 businesses are SMEs, according to the World Bank, and they account for more than half of all jobs. Their focus, the World Bank adds, is on services characterized by “low access costs and low resource requirements.” And many, whether they doing some digital business — think bookkeeping software to track payments, and social media for marketing — already. Where traditional lenders, burdened by legacy systems, fall short As mentioned, the combined weight of rising SME uptake for digital financing and measures taken to slow the spread of Covid-19 has quickened the shift from manual to online processes — and altered how we live, work, and conduct business. “While big multinationals have the capital and other resources to effect digital change, SMEs have the advantages of agility and shorter command chains, creating a scenario in which the Davids of the business world can get the jump on the Goliaths,” according to Dmitry Voronenko, CEO and co-founder of lending-technology maker TurnKey Lender, which operates in more than 50 jurisdictions worldwide. We saw this play out in the US with the 2020 rollout of the Paycheck Protection Program, a fund established to offset business losses due to Covid-19. While many large banks stumbled at the starting gate, beset by over-caution and IT snafus, smaller traditional lenders used software specifically designed for online lending to meet the PPP needs of their SME customers. “The community banks seemed to be more adept and able to move quicker than bigger banks,” Steve Trollope of LE Capital in Reno Nevada told USA Today in June 2020. “I have another business that applied for a PPP loan with Bank of America, and it never got done. They just kept going around in circles.” In sum, a number of forces have coalesced to fast-track financing into a digital future — one that features consumer- and business-facing as lenders of note. Although banks have long dominated the business lending landscape, changing circumstances and tech innovations have altered that equation. Nowadays almost any business that takes payments can own and control their lending operations by outsourcing the technology and maintenance — i.e., the hard parts. With the help of a specialist technology provider sensitive to the needs of businesses, organizations of all kinds can provide point-of-purchase lending themselves, all in their own right, without sharing fees or any of your business’ new tech-enabled revenue. Keeping control where control matters most Though issuing credit on installment seems complex and stressful to many business managers, engaging a specialist technology provider can help get you up and running quickly, and in the long run less expensively, than other alternatives. The in-house approach also: Reduces human error with AI-powered workflows and intuitive interfaces Provides automation that cuts operational costs and increases overall returns using white-label technology backed by 24/7 support and ongoing consultation Minimizes credit risks via artificial intelligence directed by machine-learning algorithms Eliminates confusing third-party statements Guarantees continuous technology improvement Tech-enabled in-house lending can also enhance customer loyalty. With fully-supported lending technology you don’t have to worry about clients getting confused by third-party documentation, providing for more ongoing touchpoints between the business and its clients, which leads to opportunities for marketing, loyalty-program enrollment, and up-selling. The fact that the most advanced in-house lending platforms available features AI to make credit decisions and set rates provides more scope for financing lengthy contracts and big-ticket items needed by, for example, healthcare professionals and manufacturers. Third-party lenders have a habit of rejecting applications because they look riskier than they really are. AI-assisted credit scoring draws on a broader set of inputs, providing a more complete picture of customers looking to finance a purchase. “Financing by installments isn’t a miracle cure,” says TurnKey Lender’s Voronenko. “SMEs still face headwinds from the coronavirus and its economic side effects.” However, giving customers the option to pay for
Six Specific Advantages of Using Advanced Collections-Management Software
Businesses of all kinds, otherwise keen to extend credit to eligible customers, sometimes think twice about the whole proposition because of collections. For many businesses, facilitating sales by means of installment payments makes perfect sense. After all, “buy now, pay later” is a tried-and-true strategy for moving bigger-ticket items and services, both in retail and B2B settings. But lending requires a systematic approach to collections. And some business owners fear rampant delinquency or the prospect of alienating customers in the process of collecting from them. But these concerns don’t actually hold much water. For one thing, consumer delinquency as represented by missed payments on commercial-bank-issued credit cards is lower in 2021, by far, than it has been since the US Federal Reserve started tracking this data point in 1991. Similarly, the delinquency rate on commercial-bank-derived consumer loans hasn’t been lower since 1986. Indeed, these days, “despite an unprecedented 18 months since the pandemic was in full force and many Americans were sent home, financial wellness continues to be on the rise,” consumer-credit-rating agency Experian notes at the top of its latest “State of Credit” report. “Consumers continue to manage credit well and the average credit score climbed seven points since 2020 to 695, the highest point in more than 13 years.” Learn about Debt Collection Software by TurnKey Lender Collections is another customer touchpoint, so make the most of it Further, makers of best-in-class financing software put as much time, effort, and ingenuity into collections and reporting as they put into building efficiencies around vetting applicants in the first place. “Nobody wants to make a bad loan,” says Elena Ionenko, co-founder and head of operations at Turnkey Lender, a pioneer in the lending-technology space that has clients in more than 50 jurisdictions around the world. “And while our software uses traditional and alternative means — including artificial intelligence — to stave off risky applicants at the underwriting stage, there is no absolute proof against delinquency.” But, Ionenko underlines, “within parameters, delinquency is predictable” and therefore manageable. “We know where student-loan delinquency is,” she says. “It’s high — like I think 18% in Q2 this year. But consumer debt? Commercial debt? Those are in the realm of 1%, 1.5% in some categories — figures dwarfed by the 10%-plus rate of goods returned to US retailers in 2020.” In short, in retail settings, lost sales from returns outweigh the potential for loss from bad debts. “And retailers don’t run from returns,” says Ionenko. “They manage them as an integral part of doing business and view the returns process as opportunities for points of contact they can use to improve consumer experiences.” In Inonenko’s view, “Businesses can and should view collections through the same lens,” she says. “Collecting on debt, viewed as a seamless part of ongoing maintenance for active accounts, is an opportunity for positive engagement.” In fact, state-of-the-art financing software gives businesses six specific advantages that make collections easier and accretive to their understanding of the markets they serve. 1.Plan strategies for all collection phases Messaging around standard collections is different from the wording that makes sense for accounts in or near arrears. 2. Restructure interest payments The ability to set and reset interest rates can be the difference between collecting and not. 3. Track promises to pay Keeping track of responses through integrations between the financing platform and messaging applications can help hone responses and facilitate effective collections. 4. Get easy access to customer history Equally, integrations ensure that everything about the client’s history with the business is on hand for help with collections messaging. 5. Leverage phone scripts for all phases of collections/communications Knowing what to say and when to say it are vital components of the collections process for truly effective financing software. 6. Classify debt Different classifications of debt — whether by amount, duration, or any other characteristic — is important both for collections and strategic planning. And of course, reporting is closely aligned with collections and provides analytics for deeper insights on the performance of a company’s loan portfolio. Loan reporting features every organization needs to succeed For example, TurnKey Lender comes preconfigured with an array of reports, templates, and interfaces, including: Accounting and customer details Ready to use in TurnKey Lender or as an exported file, the report lets you easily track loans, days past due, commissions, fees, outstanding amounts, terms, and more. Accounting cash flow Analyze accrued amounts, maturity dates, fees, and repayments. Bank account statements Pull bank statements data and get a more meaningful insight into a client’s creditworthiness. Credit risk report Conduct portfolio analysis by state, risk level, or delinquency buckets. Business performance dashboard A state-of-the-art reporting page that gives you an overview of the entire lending business at a glance. Originators and underwriters performance reports Analyze originators’ or underwriters’ performance based on the metrics specifically tailored to their position. Payment information Review the payments made both from you to the borrowers and vice versa. Customer data Pull customer data in bulk or easily configure custom reports with data points you’d like to export. Executive report Present data in form of easy-to-understand diagrams with the ability to drill down into specifics. Expected payments Get a list of all the expected payments for a regulator or a stakeholder. Loan data Analyze all available data on the loans in your system. “Businesses and organizations, from dental clinics and retail stores to banks and capital-equipment providers — even international trade factors — come to us for one reason: they want to extend credit securely, fairly, and economically,” says TurnKey lender’s Ionenko. “But they soon come to find our financing platform helps them get paid faster, manage cash flow, trim financing costs, and reduce write-offs on bad debt — in addition to the ability to pinpoint and take action of delinquent accounts swiftly and accurately.”
US Small-Business Lenders on Notice: Consumer Financial Protection Bureau Wants More Data on Applicants, Outcomes
The US federal government’s Consumer Financial Protection Bureau recently proposed new rules under an amended Equal Credit Opportunity Act. The CFPB wants small-business lenders — mainly banks and credit unions — to collect each loan applicant’s demographic and financial data to help the bureau enforce fair-lending laws. The result, says the consumer watchdog, would be “the first comprehensive database of small business credit applications in the United States.” The CFPB is unlikely to be talked out of it So how likely is this proposal to become a rule that lenders have to account for in their compliance regimes? According to Pymnts.com, the answer is “quite likely.” In an interview with the payments-industry trade publication, one expert, previously an associate director in the CFPB’s enforcement unit, expects the bureau to take a hard-line approach, even to the extent of “aggressively pushing the limits of what their authority may be.” Other signs of the CFPB’s willingness to go to the mat to ensure equal lending opportunities for small businesses, Pymnts.com cites “a windup of action, of lawsuits and allegations of consumer harm” tied to small-business lending. Under the proposal, lenders would have to provide: Information about the credit small businesses seek and obtain This is meant to help the CFPB understand small-business lending trends. Creditors would be required to share data on the purpose, type, and amount of credit being applied for, the amount approved or originated, geographic location, gross annual revenue, industry, number of workers, time in business, number of owners, and key elements of the cost of the credit, primarily via interest and fees. Demographic information about small business owners This is supposed to help the government, lenders, and members of the public identify areas of business and community development needs, new lending-program opportunities, and potential fair-lending concerns. Lenders would be required to report the ethnicity, race, and gender of the applicant’s principal owners, although applicants are permitted to decline to answer. Lenders would be required to inform applicants that the lender may not discriminate on the basis of this demographic information. How applications are received and their outcomes The CFPB wants lenders to provide information such as loan-application date, method of application (in-person, online, etc.), first recipient of application (lender, affiliate, or third party), action taken, and reasons for denial where applicable. This is meant to give the regulator insights into how — and how fairly — small-business loans are handled at the application stage. In addition to establishing the first US archive of information related to small-business lending, the CFPB plans to publish application-level data — with provisions included to balance applicants’ expectations of privacy with the societal benefits of publication, according to the CFPB. US lenders should prepare, now, for these new reporting requirements “It’s never easy to predict the fate of a federal agency’s proposal for a new rule,” says Dmitry Voronenko, CEO and co-founder of Turnkey Lender, a pioneering lending-technology maker with clients in more than 50 jurisdictions worldwide. “The political winds can change, even when it comes to so-called sure things, and new priorities can take precedent.” But, adds Voronenko: “This time, with the mid-term elections more than a year away, the CFPB seems intent on making this change happen while effective opposition is weak.” In other words, says the lending expert, “the prudent thing from an operations perspective is to act as though it’s a done deal, and start figuring out how to do the reporting that’s going to be required.” For lenders with proprietary lending technology, the most straightforward fix requires adding custom fields in the applicant profile for each application, a process that may require testing (and subsequent tweaks) that could disrupt normal business activity. Meanwhile, lenders that completely outsource their lending operations may be spared disruptions prior to rollout — only, it must be said, to encounter compliance shortfalls after the CFPB raises a query. A neater solution — especially when it comes to staying on top of compliance changes — is available to lenders that keep lending operations in-house by means of white-label software. In this version, compliance updates can be added, tested, and then rolled out safely by the software maker. And this can be done in ways that don’t disrupt day-to-day operations for the lender. “The efficiency we bring to compliance changes and updates is something we’re quite proud of,” says Voronenko, who credits Turnkey Lender’s global reach and consequent experience with dozens of compliance regimes. Sidebar: CFPB’s quest to track small-business loan applications: background and details In laying out its new proposal, the Consumer Financial Protection Bureau underlines the importance of small businesses to the US economy. The bureau, citing data from the Small Business Administration, says small businesses employ one in every three US adults, and in the last decade has created almost twice as many net new jobs as large businesses. Altogether, small-business lending put $2.4 trillion into the economy. In this light, “failing to make small business lending accessible to all who qualify stifles innovation and competitiveness, and it hampers American entrepreneurship in our cities and suburbs, on our farms, and in all our communities.” If the proposal becomes a rule, as seems likely, extensive new reporting requirements would add millions of dollars in compliance costs for “a wide range of lenders, including the smallest community banks,” says the American Action Forum, a conservative think tank in Washington, D.C. The CFPB has opened the door to comments on its proposal “from small business entrepreneurs” through the end of November 2021. Notably, while the CFPB has gone also provided a permanent “Tell Your Story” portal through which small businesses can ”share their stories about applying for credit” and “help inform the CFPB’s work,” it’s not seeking comment from lenders. As mentioned, the CFPB seems to feel its proposal — which was supposed to have taken effect under the Dodd-Frank Act more than a decade ago (before getting derailed by partisan wrangling) — is a done deal this time. In keeping with this stance,
Merchant Cash Advance Providers Need Software From an Alternative-Financing Automation Specialist
A business that requires cash quickly can get it on the fly if approved for a merchant cash advance. And approval isn’t rare. According to the US Federal Reserve, 84% of MCA applications got a thumbs up in 2020. MCAs are credit products in which payment of set amounts are made over time from a fixed percentage of the borrower’s daily sales receipts. For example, a business that gets a $25,000 MCA might have to pay a total of, say, $30,000 via automatic draws of (let’s say) 10% per diem. As a means for extending credit, MCAs fall under the broad rubric of “alternative lenders” — or, for reasons we’ll soon explain, maybe it’s best to call them “alternative financiers.” By the end of 2021, these funders will see a worldwide total transaction volume of around $341 billion in a market where the average transaction size is well under $6,000, according to one recent study. Despite all this activity, one industry source says there’s about 30% more demand for alternative financing than there is supply. For businesses, the gap is even wider. Learn about the Merchant Cash Advance Solution by TurnKey Lender. Sidebar, your Honor: Courts rule MCAs are something else As you may have guessed, MCAs are among those alternative credit products that aren’t really loans — a point that’s been made and successfully defended more than once in court. In a 2016 response to a claim that an MCA provider was “civilly and criminally usurious” in its dealings with a limousine company, a New York Supreme Court justice found the claim to be meritless because a cash advance on future sales isn’t a loan. Reviewing the agreement between Platinum Rapid Funding Group and VIP Limousine Services, the court found “usury laws are applicable only to loans or forbearances, and if the transaction is not a loan, there can be no usury.” The court added that repayment requirements aren’t usurious simply because one party comes to view them as “onerous.” Boiled down, the New York court held that when an MCA recipient has trouble making payments in accordance with the MCA agreement, it’s not the MCA provider’s problem. Could an unexpectedly protracted payment period — say, because sales have been slow — have the effect over time of a usurious interest rate? Yes, but that’s beside the point because, again, the transaction in question isn’t a loan, and so “usury” isn’t possible. A 2018 decision by another New York Supreme Court justice upheld this view, and, by some accounts, has settled the matter once and for all. Fed: MCAs have an important place in B2B funding landscape The Federal Reserve also seems to regard MCAs with equanimity. For the Fed, these instruments are part of a vital ecosystem — along with short- and fixed-term loans, and lines of credit — extended by lenders that “provide small-dollar credit for small businesses.” That these B2B credit providers generally aren’t subject to “Truth in Lending” rules that apply to consumer credit products is, in the Fed’s eyes, a matter more for caution than prohibition. In fact, the US central bank’s view on MCAs is nothing if not practical. “Small businesses account for 99.9% of all U.S. firms,” nearly half of private-sector employment, and 44% of total private-sector output, according to the Fed. With numbers like these in play — and with “less than half of small businesses” reporting that their credit needs are being met — the Fed views MCAs simply as an alternative (and much-needed) means among several others for securing business capital. Funding, lending: Whatever you call it, the tech is the same “When it comes to MCAs, we’re always happy to show both sides of the coin,” says Elena Ionenko, co-founder and operations chief for lending software maker TurnKey Lender. “They often come into play for micro-businesses — think Uber drivers and other new-economy entrepreneurs — that need help over temporary obstacles by means of a fixed-percentage split of daily revenue, which for most MCA applicants is a safe and sensible way to secure a short-term cash infusion without incurring additional interest payments.” “Because of this,” adds Ionenko, “the technology MCA providers need to assess, process, manage, and analyze credit extensions falls directly into our wheelhouse — in fact, we already have a track record of meeting their tech needs.” When it comes to alternative “lending,” a category that includes MCAs, TurnKey Lender has elsewhere observed that terms like “funding” and “financing” make more sense. From the technical perspective of a financing-software maker, however, even this distinction is moot. It’s also useful to know that the customers of MCA providers often take several cash advances a year — and of course, repeat customers contribute more revenue per account because they reduce sign-up and processing costs. What a white-label funding platform can do for your MCA business Additionally, these customers tend to pose less portfolio risk. For this reason, MCA providers should have a financing platform that can capture these savings and help maintain ties to past customers on an ongoing basis. While MCA specialists tend to dominate the space, potential new entrants to MCA funding include businesses that already serve other very small businesses — think truck stops, last-mile warehousers — and have a good understanding of the business types they’re financing. This familiarity can prevent a financier from throwing good money after bad. That said, experience and intuition aren’t nearly enough to support a smart MCA business. With a state-of-the-art financing platform, MCA providers should be able to count on the following attributes. Configurable MCA finance application flow Financing-application flow is based on MCA use cases and suits the key verticals of the merchant cash advance industry, whether with gig-workers or large merchants. The applicant describes their business, income structure, and any other relevant details required for making an informed decision on the business performance in the future. This information is then used to determine the advance amount and the profits’ percentage to be charged on a daily/weekly/monthly
The Healthcare Practitioner’s Guide to In-House Financing for Patients
You’re hearing about other medical practices rolling out in-house financing initiatives, and you’re eager to give your patients the means to pay by installment for treatments and procedures. To help you conduct due diligence, we’ll look at how in-house financing can benefit your practice, and suggest how best to broach the topic with patients. Medical businesses are top candidates for in-house financing options, especially for procedures that aren’t covered by healthcare insurance. For many patients, cloud-based financing is the difference between short-term fixes (perhaps undertaken because it’s all they believe they can afford immediately) and complete treatments they can pay off over time in installments. An easy-to-use solution lets your practice provide financing to patients without banks or other outside lenders siphoning off fees and blurring the patients’ conception of who they’re doing business with. How to get a better wheel without reinventing it Why, after all, should banks take profits your practice can generate on its own and keep, and why should your patients be subject to intrusive middlemen? An in-house approach to financing will: Safeguard your patients’ personal financial data Tailor the financing experience to the unique needs of your clinic and your patients. No two practices are alike, so look for a financing solution that’s easily customizable Let your team conduct in-depth, data-driven analysis of your business to give you a sharp picture of your enterprise’s performance over time Help you track ROI on specific initiatives in marketing and technology upgrades — including the financing platform itself Strengthen ties between your patients and your practice, and increase the lifetime value of patient relationships Leverage an intuitive interface and user-friendly workflow that makes training a breeze Flatten seasonal revenue curves with reliable installment income Tap into functional modularity so that you only pay for the components you use, and can add modules as needed Get up and running quickly. End-to-end, plug-and-play lending automation can be fully operational in just days Maintain the integrity of your branding by using only “white label” solutions. So how can your practice accrue such benefits? “Start by recognizing that, while financing isn’t your specialty, it definitely is ours,” says Elena Ionenko, operations head and co-founder of TurnKey Lender, a leader in in-house financing technology that’s active in more than 50 national markets worldwide. Triggering growth while side-stepping out-of-date technology “Handled right,” adds Ionenko, “in-house financing can accelerate business growth — and at Turnkey Lender we know how to make that a tangible result for your medical practice.” Using plug-and-play financing software, Ionenko says you can also overcome the need for financing-technology upgrades. How? Simply, it’s in the best competitive interests of your financing software maker to provide state-of-the-art functionality as soon as it has proved itself reliable and not wait for hungry competitors to set the pace of innovation. You can rest assured you’ll be working on a best-of-breed platform without having to monitor fintech advancements or worry about obsolescence. “Experience tells us medical practices using our modular platform can expect to see tangible and measurable improvements,” says Ionenko. Among other benefits of deploying in-house financing, Ionenko cites: 120% average order growth after financing-platform implementation 17% growth incremental sales 93% of financing-platform users re-use the credit option Besides driving repeat business and providing for fast and efficient customization, a robust in-house financing platform will feature credit decisioning that’s driven by artificial intelligence. Advances in AI lets your practice conduct fast, accurate assessments of patients’ ability to honor financial commitments based on traditional inputs (such as financing applications and credit-bureau scores) as well as alternative inputs that uncover financial “tells” using behavioral analytics. How to tell patients about in-house financing options For all the benefits of using advanced financing software to streamline credit assessment and management, broaching the topic with patients can be tricky — especially in novel contexts like a medical or dental practice. To aid in this task, and provide a full-context overview of what it means to provide dynamic financing, we suggest keeping in mind the following considerations. Avoid sales-oriented approaches or emotional appeals. Talk about financing as an option, just like you’d run through different treatment options: clearly, kindly, but with a hint of professional dispassion. If you sense the cost of a recommended treatment is too steep for a patient, by all means, introduce the topic of financing as a creative solution, offset perhaps by offering discounts for immediate payment Above all, remain friendly and confident, knowing that you’re providing a range of responsible options But it’s always advisable to get the word out about financing options by multiple means, and not save the revelation for last-minute discussions. Among ways medical practitioners have found success in this realm are website and social-media messaging, informational loops on waiting-room monitors, in-house signage, media kits, brochures — even fridge magnets and reminders on routine communications with clients sent out by email, text, or the post. The rapid democratization of technology means that medical institutions and clinics worldwide now offer payment plans to their patients. As a result, a lack of funds shouldn’t be a reason to deny patients the service they need, force them to seek lower-quality treatments or avoid getting necessary treatment altogether. “Financing used to be the exclusive turf of large financial institutions, and to compete with them you needed to have extensive resources and a developed infrastructure consisting of technical staff, a fully-fledged lending department, and a complex proprietary solution to support it all,” says Turnkey Lender’s Ionenko. “The rise of financial technology has made it much easier for medical and dental practices to offer in-house financing for procedures, especially to patients they can rigorously evaluate from a credit-decisioning perspective.”
How Loan Automation Makes In-House, Software-Enabled Consumer and B2B Lending an Absolute No-Brainer
Faced with a pandemic that’s changing how retail businesses engage with their customers, and under pressure to disburse tide-over “stimulus” funds to businesses roiled by the public-health crisis, banks and other lenders have flocked to labor-saving, social-distancing technologies in the last 18 months. Of course, lenders are past masters at rising to challenges. Just since 2008, they’ve had to contend with a global financial crisis, regulatory reforms, a bewildering array of new technology — and now a contagious disease that has claimed the lives of more than 4 million people by official counts. Spurred by the pandemic, it’s a banner year for fintech investing Perhaps in keeping with the current crisis, the first quarter of 2021 saw 39% quarter-over-quarter growth in financial-technology funding, according to CB Insights. Research by new-company tracker Dealroom indicates that London-based fintechs chalked up more funding than in any full year on record — in just the first six months of 2021. “Investors poured $5.3 billion into London fintech startups in the first half of the year, compared to $2.1 billion in the same period in 2020,” writes Reuters, reporting on the finding. But closer analysis suggests digital adoption around loan automation in the era of Covid-19 has been skewed toward big lenders. According to one new survey, “77% of institutions topping $10 billion in assets accelerated digital transformation plans as a result of the pandemic.” But only half of lenders with less than $10 billion in assets could say the same. “Lenders who aren’t actively striving to increase automation are losing ground to rivals operating at a rapidly quickening competitive advantage,” says Elena Ionenko, COO and co-founder of TurnKey Lender. “It isn’t just that they’re forced to work at a slower pace — and as a result process fewer loans with less precision and security — they’re actually missing out on game-changing innovations included in the technology stacks that enable basic lending functionality.” Artificial intelligence is one example of a technology add-on that lenders lacking automation must do without. This matters because AI is changing the face of lending. It helps lenders delve more deeply than ever to uncover more about individual customer behavior than loan applications and credit-bureau scores ever could by themselves. Inputs on specific, individualized, real-world financial behaviors — spending and bill-pay habits, for example — allow lenders to make better lending decisions and lay the foundation for more robust loan portfolios. With loan automation on tap, you won’t miss out on ancillary technologies Lenders hemmed in by manual processes couldn’t be further from game-changing innovations like AI, and the advanced machine-learning that underlies it for cutting-edge lending-tech vendors. Far from advancing capabilities around due diligence and risk mitigation, lenders condemned to push pencils are hard-pressed to assemble the documents and corral the third-party vendors needed to secure, process, and manage loans. Some lenders who can rely on seamless integration with third parties such as — Credit bureaus Payment providers Account verifiers — say they have trouble imagining what the laborious, error-prone manual workarounds required for old-school lending even look like. That’s a stance TurnKey Lender’s Ionenko has grown accustomed to. “For those who have grown accustomed to loan automation, it’s simply inconceivable,” she says. “They can’t comprehend the inefficiency.” Where integration isn’t present, staff must repeatedly rekey the same information for disparate systems, wasting time and risking costly data-entry errors. Eliminating data re-entry should be a top priority for institutions that want to save as much time as possible and eliminate unnecessary risk. In this sense, an online application that’s integrated with the lending-system configuration the lender has selected is the starting point for “straight-through” processing that includes automatic “field inputs” for third-party forms, ongoing loan management, and internal analytics. To benefit from greater operational analytics and transparency into borrower pipelines, lenders are using relationship manager technologies that aggregate all customer information into a complete view of each customer and loan. This technology helps financial institutions centralize all customer engagements, accurately report on the institution’s lending pipeline, and track all open opportunities. The net effect of integrated automation? Unparalleled insight Community financial institutions have no control over the economy. However, by examining key inefficiencies and processes that add costs, delay turnaround times, and increase risk, financial institutions can be more prepared for economic changes and remove obstacles to success. In particular, integration with relationship-management software — Salesforce is the biggest example — provides a broad view of every loan applicant and every borrower and every transaction from the point of origination on. With all customer engagements recorded, and access to these records centralized, lenders can get a vastly improved view of its lending pipeline. The net effect of not having to chase paper and type in the same data at multiple junctures? Third-party responses tend to come in faster, with traffic directed by automatic notifications that in turn ensure next steps are handled in proper order and that bottlenecks are few and far between. Not least, constantly improving technology means lenders can merge loan pricing, loan analysis, and risk assessment to save time, improve efficiency, and inform pricing decisions. As a result, loan automation helps firms price loans strategically, so that loan operations are simultaneously competitive and profitable. “The greatest benefit of loan automation, even past efficiency, is visibility,” says Ionenko, named Innovator of the Year by Finovate in 2020. “That’s what enables our clients in 50 countries to determine creditworthiness, develop informed and dynamic pricing policies, and inform customer outreach and marketing strategies.” To learn how TurnKey lender can help your business, get in touch with our team to discuss your needs or request a live demo.
Five Reasons Your Lending Operations Need an Upgrade, and How Smart Loan Origination Is Fast-Tracking the Future
Automation has been increasing workplace efficiency since the days of water-powered grist mills. And while banks have long been at the forefront of automation associated with lending, the advent of the internet, developments in artificial intelligence, and the rise of hand-held, take-anywhere devices have empowered third-party innovators and pushed leading-edge loan origination into new markets. “Non-traditional lenders looking to increase efficiency, decision speed, and productivity while enhancing the customer experience are turning to automation specifically to streamline loan origination processes,” says Doug Peterson, a senior consultant with Moody’s Analytics. Lenders, he says, are “breaking down and examining stages of the origination process to improve and standardize legacy procedures and make better decisions faster.” The global loan-origination software market is expected to see a compound annual growth rate of 14.70% in the eight years between 2020 and 2029, says Straits Research. The spurs to such growth? Growing demand from the pre-existing and de novo companies in the financial-service sector, and technology advancements — again, especially around AI — are propelling the market growth, according to the research firm. Curious how AI-driven loan origination and management software can transform your business? Schedule a call with one of TurnKey Lender experts and start your digital transformation today. Software-enabled, fully supported in-house loan origination But Straits research published its report too early to take account of another powerful impetus to growth: pent-up demand from the coronavirus pandemic Loan origination software automates every stage of the portfolio cycle by simplifying and improving application and approval processes. Loan origination solutions provide a holistic view of borrower transactions across all channels and products on the platform. The result? Smoother operations, happier (and often, repeat) customers. Add to this list of benefits the means to analyze business results and trends, and subsequently formulate sharper business strategies. There are other advantages to running loan-origination software as the basis for an in-house lending program. By managing loan products centrally, loan-origination software reduces compliance risk. Loan-origination tools provide activity monitoring as well as content and resource optimization through audit trails. These tools may also include underwriting and rating software functionality and credit analysis. Cloud-based loan-origination software typically contains loan-servicing functionality for an end-to-end loan-management and customer-communications solution that integrates with all major system softwares. Action in the face of obsolescence for better loan origination Companies reluctant to consider in-house loan origination in favor of legacy in-house applications or outsourced loan processing, might want to consider a recent move by Adobe. Just two years after the software giant updated its content-management offering, it released a new overhaul last summer. “The company saw that the market was developing fast and the platform would become obsolete,” writes BusinessMatters. In other words, Adobe looked at conditions on the ground and concluded it and its customers needed a new take on content management rather than a system — even a relatively new one that doesn’t adequately address new issues or leverage emerging technologies. “Adobe drives home a profound point,” says Dmitry Voronenko, CEO and co-founder of TurnKey lender. “Business software systems are only adequate to the extent they support a company’s ability to compete and grow.” Past that, Adobe makes an important point about obsolescence, according to Voronenko. “When a company builds its own loan-origination platform, it’ll be tempted to limp along on existing technology, even when that technology isn’t adequate to the demands of the marketplace anymore.” Loan-origination platforms that just never get old The same holds true for outsourced platforms. “In fact,” adds Voronenko, “you may never know what technology the bank that provides your customers with credit services is using, still less how old it is.” With an in-house lending-software solution, on the other hand, it’s in the software maker’s best interests to provide its clients with the latest technology before they even ask, he says. But how is a company — whether it caters to consumers or other businesses — supposed to know when its lending platform is out of date? There are five main ways. 1.Business goals become more difficult to attain If monthly tallies for green-lighted loan applications start slipping while competitors continue to thrive, the problem may be that your marketing software isn’t as integrated with your loan-origination software as it should or could be, resulting in good prospects being turned away. The solution is a loan-origination software that makes deep integration easy. 2. Communication breakdown What else would you call when younger consumers turn away because you won’t let them reach out to you in multiple ways? If all you offer is a “contact us” online form and a telephone number, you’re up against competitors that let customers reach them via chatbox and instant messaging as well. 3. Dead-end interfaces Web- and mobile-savvy customers — read: most people under age 70 — know what they want from an interface. Do you? Loan-origination software vendors like TurnKey Lender work with consumers to understand the workflows they like best. Following up on these insights by providing dynamic personal accounts for two-way communication, tracking past activity, and keeping up with progress on and payment dates for current loans will make your business extremely customer-friendly. 4. Your security isn’t up to scratch Outdated security can open breaches that hackers can use to infiltrate your systems and steal your customer’s private data. For example, TurnKey Lender — which has SOC 1 and SOC 2 Type II compliance reports and the globally-recognized ISO 27001 certification — works to prevent such attacks by having its solutions audited internally and by third-party experts. 5. Your rivals are up to something If your competitors are using a loan-origination software system as up-to-date as TurnKey Lender’s, they’re able to zero in on loan applicants who pose little risk but don’t measure up to traditional measures such as credit-bureau scores. With permission, TurnKey Lender’s AI- loan-origination — powered by deep neural networks and machine learning — delves into spending patterns, billing histories, behavioral-finance “tells,” and other reliable indicators. The result? An influx of “undiscovered” borrowers that can tip competitive scales in your favor. Alternative scoring is something you simply can’t afford to do without. “There’s an excellent reason most creditors are eager
Non-Profit Lenders Want — and May Need — to Demonstrate Their Impacts on the Communities They Support
Voices in community development are urging the Biden administration to use CDFIs — community-development financial institutions — to bolster its goal of supporting equity for communities that are underserved in terms of equal access to economic, social, and civic services. 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
Smart Lending Tied to Advanced AI and Hyper-Intelligent Simulation
Going back 10 years or more, the promise of “big data” didn’t mean that much to financial-technology veteran Michelle Katics. Not in practice anyway. “I said, ‘Talk to me when this is actually feasible, when it’s a plug-and-play solution for accessing large data sets and using it to make smart decisions,’” says Katics, co-founder and CEO of BankersLab, which provides training and simulations for financial-service businesses of all kinds, including lenders. “But now I would say big data’s time has indeed arrived because it’s so easy now for lenders to ingest really rich open-data sources — like checking and savings transactions — and convert that into actionable insights they can drop right into their underwriting process, says Katics.” In short, the advent of digital lending-process automation is finally delivering on the promise of big data for lenders — and equipping more businesses than ever to compete with more entrenched players. Partnership between TurnKey lender and BankersLab “Gone are the days of needing $5 million to implement the smallest system because you ‘need’ it on-premises and you ‘need’ a couple of mainframes,” says Katics. Instead, “Businesses can call on a lending-system automator, “and say, ‘Hey, you’re in the cloud, let’s go, we’re ready.’” The confluence of big data and fintech tools that can turn it into actionable intelligence prompted BankersLab to “up our game and address players in the market who are new to lending,” says Katics. This quest led BankersLab to lending-technology maker TurnKey Lender. The companies have established a new partnership to provide a digital “virtual world” for lenders looking to optimize digital transformation and portfolio management. The partnership equips TurnKey Lender to “help our customers visualize and test in a simulated environment the new solution and new approaches to credit-risk assessment and underwriting,” says Elena Ionenko, TurnKey Lender’s co-founder and COO. In this equation, adds Ionenko, TurnKey Lender provides “fighter jet” technology while BankersLab provides a “flight simulator” to prepare lending teams to “fly quickly and safely.” For Katics, the partnership reflects the need for a best-practice solution for lenders “to use ‘virtual’ worlds or ‘sandbox’ exercises to create a deep understanding of the key lending drivers and refine business strategies.” The BankersLab executive adds, “By partnering with TurnKey Lender, we provide a unified offering which bridges strategy to deployment.” The future of lending is digital, and smart simulation is its gatekeeper The simulation-software market was worth $8 billion in 2020, according to Mordor Intelligence — which expects it to top $15 billion by 2026 for a compound annual growth rate of more than 11.5%. The lending-tech market is on a steeper trajectory. Standard & Poor’s reckons digital lenders focused on small and medium-size enterprises will see a five-year compound annual growth rate of 21.5% through 2021. S&P further predicts consumer-oriented digital lending will see a compound annual growth rate of 12.4% in a five-year period ending on New Year’s Eve 2021. Meanwhile, the coronavirus pandemic has “compelled organizations to protect employees, address critical challenges, and fight to minimize losses, which taken together seem to be accelerating uptake past industry predictions,” says TurnKey Lender’s Ionenko. “Simulation modeling helps businesses develop strategies to respond quickly, safely, and effectively — all major concerns for organizations in a public-health crisis.” The future of lending is digital, according to PwC, which says under-age-40 consumers — set to dominate world economies for the next few decades — are more likely to prefer digital interaction at every stage of the lending process than any other demographic band. Among the verticals most likely to benefit from the partnership between TurnKey Lender and BankersLab are retail, healthcare, and automotive. Beyond these consumer verticals, the ability to run sophisticated what-if scenarios aligns with the needs of B2B businesses, especially in the realm of capital equipment. TurnKey Lender’s Equipment Financing Platform for Manufacturers provides end-to-end automation and fast credit decisioning to increase revenue and deepen client relationships. The new integration with BankersLab ties data-based simulation to probable outcomes. The result is a risk gauge for lenders based on general and specific inputs, generated without slowing workflows. Whether your lending platform is for consumers, businesses, or both, the partnership between TurnKey Lender and BankersLab means fast, state-of-the-art financing that can help your business: Provide top-flight client service through intuitive web and mobile interfaces Turbo-charge underwriting using AI-powered Monte Carlo and other simulations Boost applicant conversion rates by 40%+, and operational efficiency by 200%+ Achieve same-day loan approvals that can scale to process up to three million loans a day Grow each client’s lifetime value by offering a quick and easy borrowing experience in keeping with current expectations of financial technology In contrast with a retailer or capital-equipment maker that uses old-line technology to process financing applications, select risk-appropriate terms, make credit decisions, and collect installments, a credit platform that does all the heavy lifting lets you focus on big-picture issues rather than worry about the machinery humming away in the background. “Together, TurnKey Lender and BankersLab provide a bank-grade and wholly configurable lending solution that’s easy to use, and comprehensive,” says TurnKey Lender’s Ionenko. Katics agrees. “The rubber is really hitting the road with AI and big data augmenting specific tech innovations around lending and, more generally, customer assessment via what-if simulation,” she says. “When you have everything you need at your fingertips, and plug-and-play becomes state-of-the-art, the future of lending really starts to take shape.”