Since the launch of Prosper in 2006, the first US consumer-based online lending platform, this proposition has resonated well with customers (and lenders). In 2015, the global market was valued at US$62 billion, a year on year growth of 258%. The growth reinforces the point that non-bank lenders have been winning the battle for customer’s wallets. The success and growth of online lending platforms has traditional banks concerned over the risk of market share erosion and profit losses to competitors.
Goldman Sachs estimated the profit at risk to be US$11 billion out of a total US$150 billion in the next 5 years
We believe this was just the start, in an industry still in its infancy. Traditional banks are now busy developing differentiated propositions that will take the battle to a new level; the battle for the customer’s hearts and long term loyalty.
In this round, battlelines will go beyond price; on delivering superior customer experiences, and through this, ensuring long term loyalty of existing and new customers alike.
With access to similar technology, traditional banks have the capability to match the faster, smaller, cheaper proposition of non-bank lenders. The game changer will be traditional banks leveraging their capabilities and assets, to deliver meaningful and compelling experiences that resonate on an emotional level. Their challenge will be to overcome legacy IT infrastructure and complications when integrating new with old.
These capabilities and assets can broadly be placed into three categories - customer knowledge, customer management and networks:
- Rich data on spending patterns and assets purchases
- Bank accounts linked to employer salary deposits
- Customer contact centres
- Established loyalty programs
- Ongoing investments in customer experience design and management
- Awareness of the customer journey and associated pain points
- Seasoned customer experience management practitioners
- Diverse business partnership programs
- Active community engagement programs
- Established and resilient brands (some of which are slightly tarnished).
Realising both the threat and opportunity, even large traditional banks have announced plans to enter the market. In recent months, Wells Fargo launched a business lending platform and Goldman Sachs its first service aimed at retail customers. Whilst there some restrictions that limit access to the Wells Fargo platform, their Small Business communications team stated: “We decided that developing our own product would be the best experience for our customers”.
This, in stark contrast to other banks around the world who have partnered with third party platforms as a fintech light way to enter the online market.
It will be interesting to observe how this ‘best experience’ evolves over the short term and whether they begin to scale and use the platform as a growth driver for the adjacent business - such as wealth management services.
A recurring theme among our more established financial services clients reveals that competing on experience and establishing an emotional connection with customers is seen as an effective method of regaining ground.
The key challenge to realising this goal is the requirement to build off legacy IT systems, which undermines the faster and cheaper dimensions of the proposition.
And here, the key lies in successfully exploiting the growing open API and cloud based service ecosystems.
Data Sources used in this article:
Goldman Sachs, Massolution
Grow Advisors, Asia Pacific
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