Benefits of Buy Now Pay Later services for consumers and businesses
It may feel like BNPL has been around forever, but Buy Now Pay Later services only gained major traction in the 2020s, revolutionizing the way consumers make large purchases and providing new opportunities for businesses. Let’s explore the concept of Buy Now Pay Later and go over its benefits for both consumers and businesses. From better margins for the business owner to increased customer satisfaction, this payment model has proven to be a game-changer for product and services providers worldwide. And it’s just getting started. But first, wanted to check if you (or your staff) would like to get the ultimate BNPL automation white paper for B2C and B2B companies? What is Buy Now Pay Later? Buy Now Pay Later is payment model that lets consumers to pay for a product or a service in installments over time and get the purchase upfront. This simple credit product eliminates the need for immediate full payment and provides flexibility to consumers. On the other hand, business owners who offer Buy Now Pay Later improve their margins, customer loyalty, and overcome income seasonality. What is Buy Now Pay Later? Buy Now Pay Later is a payment model that lets consumers pay for a product or a service in installments over time and get the purchase upfront. This simple credit product eliminates the need for immediate full payment and provides flexibility to consumers. On the other hand, business owners who offer Buy Now Pay Later improve their margins, customer loyalty, and overcome income seasonality. How does Buy Now Pay Later work? Both product and service providers can offer Buy Now Pay Later payment options. To implement it into your business, you will need to decide between the two common options. Once your BNPL solution is in-place, the client selects this payment option at the checkout and splits their purchase amount into smaller payments, usually charged automatically bi-weekly or monthly until repayment. Businesses that use third-party financing providers have little control over the financing terms and whether the client will be approved. And after the purchase is complete, the business owner loses control over customer relations. To be able to create new BNPL campaigns and offer accessible terms tailored to your clients, you’d need to run your Buy Now Pay Later operation in-house. Which is what we specialize in. Here is a demo of what your own pay later operation may look like with the TurnKey Lender Platform. Benefits of Buy Now Pay Later for consumers With the rise of BNPL finance providers like Affirm or Klarna and heavyhitters like PayPal and Apple entering the arena, it is evident that customers want and use these services. Lower interest rates One of the key benefits for consumers is the availability of zero-interest installment plans. Many Buy Now Pay Later services offer interest-free payment options if customers repay the installments within a specified period. This eliminates the burden of accruing interest charges, making it an attractive alternative to traditional credit card payments. BNPL can help improve your credit score Buy Now Pay Later services can also help consumers build or improve their credit scores. When customers make regular, timely payments on their installments, it demonstrates responsible financial behavior. Positive payment history can contribute to an improved credit score, opening doors to better credit opportunities in the future. This is one of the things Esusu does with TurnKey Lender platform by reporting timely rent payments to credit bureaus and allowing renters to pay off large charges over time. Spread large sums over time Last but not least, the whole point of the pay later phenomenon is to not have to pay all the money at once. While this applies most for individuals living paycheck to paycheck, Buy Now Pay Later provides a way to manage large expenses and cashflow without involving the bank. By spreading the cost of a purchase over several installments, consumers can avoid financial strain and budget more effectively. This flexibility allows them to make necessary purchases without having to wait for their next paycheck or having to liquidate assets. Benefits of Buy Now Pay Later for businesses According to Klarna, Implementing a pay later program leads to 41% increase in average order value, 35% increase in conversion, and a 45% higher purchase frequency. And it’s not just the retailers and electronics stores who need to take notice. 71% of Americans who visit the dentist frequently would use BNPL over traditional payment methods. And 86% of pet owners would choose BNPL in place of traditional payment methods to help pay for future vet costs. As a business, it’s important that you promote responsible use of credit products. At the same time, you will be protected from unreliable clients by the decisioning system inside your lending platform. Increased average order value Implementing Buy Now Pay Later services often leads to an increase in average order value. When customers have the option to spread payments over time, they are more likely to make larger purchases which look more affordable. Businesses can capitalize on this by strategically promoting the benefits of installment plans, boosting sales, revenue, and combating income seasonality. Here’s a story of a furniture provider that successfully offers rent-to-own and leasing payment options in Florida. TurnKey Lender Customer Success Story: Rent-to-own/Leasing Automation for Own it 4 Less Improved customer retention and satisfaction Offering Buy Now Pay Later options enhances customer satisfaction by providing greater purchasing power and flexibility. It caters to customers who prefer to make purchases without immediately depleting their funds. By providing this payment alternative, businesses can attract more customers and foster long-term relationships. Provide financing to customers without third parties Traditionally, businesses have relied on third-party financing options, such as banks, to offer installment plans to customers. Buy Now Pay Later services eliminate the need for intermediaries, allowing businesses to build stronger direct relations with their clients. This streamlines the process, reduces costs, and simplifies the customer experience. What businesses can offer Buy Now Pay Later Each day new businesses start offering flexible
TurnKey Lender Standard Platform Capabilities (With a Bonus White Paper)
The mission behind TurnKey Lender is the global democratization of credit, for both borrowers and lenders alike. And in the effort to make e-lending as easy as modern online commerce, TurnKey Lender created the award-winning Standard Edition of its software. The TurnKey Lender Standard Platform makes lending automation plug-and-play, or as we prefer it – turn-key. The Standard Edition is an end-to-end lending infrastructure that comes built-in with all the modules, calculations, and features most businesses will need to start, run, and scale their lending operations. To simplify the process for clients in various business domains, separate editions of TurnKey Lender are tailored to the needs of different lenders including: Banks and credit unions Equipment manufacturers, retailers, medical professionals, auto dealers, etc. Microfinance, digital, P2P lenders For businesses that need custom and unique lending processes automation, there is the Transformer Edition, a custom solution with a set of extra flexible and powerful bank-grade tools capable of automating lending flows and decision logics of any complexity. You can download a full-size white paper about TurnKey Lender Standard’s capabilities or keep on reading to get a quick look. TurnKey Lender Standard Features Overview – How the Platform Works TurnKey Lender is an integrated platform with dedicated permission-based workplaces that have features tailored to the needs of different types of users that interact with or work in a lending business. Loan Origination for flexible application processing The Loan Origination Workspace in TurnKey Lender 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. 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 AI instantly where other software providers still require manual analysis and requires days of work time on each application. Underwriting for instant risk evaluation and borrower analysis The Underwriting Workspace of TurnKey Lender includes functionality for in-depth risk scoring, borrower evaluation, decision rules checks, loan agreement generation, loan offer management, and more. This workplace is designed in an intuitive way to present the maximum amount of credit scoring data on a single screen and to allow underwriters to make informed loan decisions in a matter of seconds. TurnKey Lender then aggregates all the data your instance has access to internally and through integrations to come up with a single creditworthiness metric that lenders can see at the very top of their workspace. Applications can be assigned to employees, moved back to Origination, commented on, and analyzed in every possible detail by the employee. TurnKey Lender’s award-winning Decision Engine uses self-learning algorithms and deep neural networks to process both alternative and conventional risk assessment data and make a fully automatic loan decision or to provide an underwriting specialist with the in-depth analysis results at a glance. This allows lenders to streamline and fully automate their credit processing and achieve almost instant loan decisions. Intuitive Collateral Management for accurate and timely management of various assets If your business works with secured loans, your TurnKey Lender Standard Edition will come with a fully functional Collateral workplace where all the operations with collateral assets are carried out in. The Collateral Officer in charge of the loan application can: Loan Servicing for Loan management the way it’s meant to be done The Loan Servicing module in TurnKey Lender encompasses all the activities related to loan management post loan approval. Loan managers or servicing officers use this module to manage loans’ schedules, charge installments manually, implement loan modifications, rollovers, grace periods, restructure loans, communicate to borrowers directly from the dashboard, and more. Automated Loan Collection Alleviating Headaches of a lender The Debt collection module allows for efficient management of loans’ collections with AI-driven collection priority, delinquency buckets, configurable collection strategies, and conversation scripts. Collections is another workplace where we apply our proprietary AI. In this workplace, the machine learning algorithms learn to evaluate the borrower base of a lender and evaluate the collectability of each loan to help the staff pursue the right approaches with each borrower. In-depth yet clear reporting for all your lending analytics needs The Reports Module analyzes, formats, and presents insights from all the business-related data across the TurnKey Lender system. Reports are presented in the form of easy-to-understand graphs and dynamic dashboards which can be quickly updated or formatted differently depending on the current business need. Lenders can also create fully custom reports in the built-in Reports builder which uses hundreds of smart markers to pull any type of operation’s data lender might need for their stakeholders or internal analytics. Borrower Portal to make sure your borrowers have a quality digital experience with you Borrowers get a digital end-to end experience that provides an exceptional and perfect lending interaction. . The digital workspace provides borrowers with a fully digital web (or mobile) app where they can manage their personal and payment details, apply for new loans, make repayments, and keep track of all the lending-related information. Optional: Vendor Portal As businesses must move their operations online to remain competitive, more and more SMEs are considering launching an in-house financing program for their vendors, merchants, and partners. Vendor financing with TurnKey Lender allows businesses to add a new sophisticated monetization source for a business to be able to build more meaningful relations with clients and partners through affordable and easy-to-use credit. Through the vendor portal a business owner can now offer in-house financing and other credit products to vendors directly. This functionality is created to provide the freedom to finance vendors and separate stores without involving any middlemen. Optional: Peer-to-Peer (P2P) Module (with Investor Portal) If you’re operating a peer-to-peer lending business , you will get the Peer-to-Peer Module in your
How to offer pay later financing to customers – in-depth intro to the BNPL industry
Valued at $90.69 billion in 2020, the pay later market is projected to reach $3.98 trillion by 2030. A power shift in the client financing space is underway. PayPal Credit, Apple Pay Later, WeChat’s Fen Fu, Alipay, and other trend-setting players started the race as customer finance is moving to the point of sale. Letting your clients 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. Of course, in the good old days, it was simple – there was just your shop in the village, and you knew every customer. Keeping a ledger of who owes how much and for what was easy when communities were small. But at some point society came up with credit cards, giving the monopoly over lending to large players like banks. Before we continue, wanted to check if you (or your staff) would like this Buy Now Pay Later super guide that goes over everything you need to offer financing to customers in-house 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 is – it used to be too hard to evaluate credit risk accurately, and even if you had the capacity for it, underwriting took too long. Times have changed. Traditional lending out of 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 low-to-zero-interest point-of-sale pay later options. This creates an enormous market gap for affordable, seamless, and secure customer finance. 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. Pay later for lenders and for product/service providers If you’re reading this, most likely, you fall into one of these categories: Both as a lender and as a provider of goods or services, you may be offering B2C and B2B pay later options. If you’re approaching buy now pay later as a lender, you will need to have your margins and loan rates built in a way that you make money on credit. But as a product or service provider offering your own inventory, you’re at an advantage since you make money selling the product, not necessarily from credit itself. So if you as a business owner own your pay later program, you can have very liberal terms (0%, easy qualification, grace periods, etc). That said, finance providers, retailers, manufacturers, service providers – we’ve researched and written this piece with all you in mind so keep reading. And to make sure we’re on the same page in terms of the benefit BNPL brings a business, here are a few important things you get: Buy now pay later adoption statistics The market rules remain stable – products and services don’t flourish unless the customer generates demand. Buy now pay later has been growing at a staggering rate which serves to prove that this change in the lending space has been long overdue. Consumers cite these as the reasons for why they use BNPL instead of credit cards And even if you look at it simplistically, it makes a lot of sense that credit should occur at the point of sale instead of a separate place that has nothing to do with the purchase. Of course, traditional lenders will retain control over large loans with complex calculations. But you don’t need Bank of America’s underwriting staff to charge a client (automatically) 4 times instead of 1. Here are the most important BNPL statistics to date that you as a business owner need to be aware of: But it’s not all sunny in the buy now pay later kingdom. Buy now pay later criticism, regulation, response, and ethical lending And as with any exciting new trend, some people take advantage while others fall into their traps. And this is the situation we’re in. BNPL is a relatively unregulated payment method, and now it’s being looked at more closely. Some of the recent stats indicate that: With stats like these popping up, people start to accept that the pay later option is not a silver bullet for getting anything you want at a fraction of a price. You still have to pay and as with any credit – if you have too much of it, it can get out of control. It is to be said that BNPL can get a bad rep because of occasional predatory lenders who charge savage interest, aren’t flexible on terms, approve BNPL requests even when the client isn’t able to pay, etc. There’s an active global discussion around the rise of BNPL trend. Many regulators and organizations claim that this kind of credit product can lead to irresponsible consumerism. Which may be a little condescending towards the consumers. Nonetheless, government agencies start to act: Regulation is a healthy reaction, especially in areas which can be abused, like credit. And in this light, it reinforces the idea of credit being the force for good. And the processes we’re witnessing are the standard flow of things: The tech-enabled pay later trend is on the 3rd stage of adoption. This financial tool is at the very beginning of its renaissance with plenty of market space left to claim. It’s important for us to note that TurnKey Lender is focused on and
10-point checklist for choosing your new loan origination software in 2024
Companies spend months negotiating with LOS vendors to choose the infrastructure for their lending operations. But same as when picking a car, if you know what to look for, weeding out vendors who’ll turn out incompatible is immensely easier. Initial SaaS filtering criteria There are many loan origination systems. And most of them don’t meet the lender’s most basic Software-as-a Service (SaaS) requirements. So, before we go into the questions specific to loan origination solutions, here are the general quality assurance criteria to consider with any such core technology choice. These criteria are crucial, but it takes a little more to navigate the loan origination software waters. Loan origination software selection must-haves 1. Loan application flow configurability 2. Real-time application processing 3. Scalability to handle growing portfolios 4. Innovative credit product development 5. Credit scoring accuracy and flexibility 6. Keeping up with industry and regulation 7. Supporting digital credit beyond loan origination Fragmented lending solutions lead to errors, higher costs, and inconsistencies in borrower experience. It’s important that your LOS vendor lets you upgrade the system with new features and integrations out of the box. TurnKey Lender LOS is a part of end-to-end lending automation infrastructure that covers all elements of consumer and commercial credit. From loan processing and disbursement to servicing, debt collection auditing, and reporting – TurnKey Lender does it all. 8. Reliable uptime Reputation losses withholding, the average cost of downtime for businesses is $5,600 per minute. This means that even a short outage can have a significant financial impact. TurnKey Lender reliably delivers a 99%+ uptime, ensuring a seamless cloud-based experience, keeping services online and dependable, no matter where operations are based. 9. Borrower’s self-management capacity Borrowers hate being confused about anything concerning their finances. Intuitive user interface and clear communication make all the difference to the person applying for finance. Borrower gets a personalized online loan application process with an instant decision. They can pick their application up and all their lending interactions take place in an intuitive borrower portal. 10. Time-to-market for initial release and updates You need to be able launch credit products, add integrations, and adjust application flows quickly and autonomously. This disqualifies most LOS providers who take months to deliver requested updates due to the software complexities. TurnKey Lender comes with pre-configured location- and industry-specific credit calculations, workplaces, and integrations to ensure 3-5 faster time-to-market. Once in place, most lenders start to handle all aspects of credit on their own, but TurnKey Lender Team is constantly at your disposal for any additional features configuration.
Steps of the Commercial and Consumer Lending Process You Can and Should Automate in 2024
The digital lending entry barrier got lower than ever with the rise of intelligent, functional, and user-friendly FinTechs. Now anyone can launch an end-to-end lending automation platform to compete with large-scale financial institutions on a level playing field. And this doesn’t only apply to alternative lenders, pretty much any SME, retailer, e-commerce or manufacturer can deploy a fully-fledged bank-grade lending program from scratch within days and reap the benefits that would previously go to a bank. With little to no extra effort and management overhead.
Part I: How to enter the commercial lending space (11 high-growth business lending sectors)
Before we get into the neat and grit of commercial lending automation, let’s size up the business opportunity we’re talking about. Looks like a market ripe for an innovative lender to take their share, right? It is. But at the same time, large, non-local banks are responsible for 89.5% of loans under $100k given to small businesses and an even larger proportion of bigger loans. This disproportion business lending giants leads to statistics like these: Where local or niche businesses could’ve been financed by specialty lenders or local creditors understanding their needs better, they went to a bank. And most often got declined. The unserviced part of the market remains huge. It used to make sense, because legacy commercial lending automation used to be boutique and therefore expensive that only a mammoth financial institution could afford to maintain it. But it doesn’t anymore. Even though this status quo was held for a while, the B2B lending technology market has changed dramatically. Making it possible for a wide range of alternative and specialty lenders to automate every part of their commercial lending process in-house achieving lower credit risks, lower margins and operational costs, and therefore, better terms for their business borrowers. Before we continue, we wanted to check if you (or your staff) would like this white paper that describes how to automate all parts of the commercial lending process. What kind of commercial lenders are there? We’ll go into more detail as we delve into the topic of commercial credit automation, but on a high level, commercial lenders can be categorized this way. Commercial lending verticals with the highest growth potential It only makes sense to enter a commercial lending space in the industry you know better than most. But within this space, there is a wide range of credit products and approaches your organization can take when extending B2B loans to your customers. We closely monitor the global lending trends in the markets we focus on. And in the recent years, we have seen the most significant growth in the following commercial lending verticals in North America, Europe and Southeast Asia: What can you finance as a small business lender? And while these are the businesses that come to us most often right now, this doesn’t mean that other B2B verticals are less well-positioned for rapid growth. So the key for a commercial lender is to find your niche, craft the best offering you can on one or several of these items, depending on your small business customers’ current needs. With a modern commercial lending platform like TurnKey Commercial, pivoting and adjusting to market changes quickly won’t be a problem. Cutting costs and minimizing risks with commercial credit automation To carve out your own piece of the commercial lending space, you’ll need to serve your existing or emerging industry better than the competitors. Large institutions relying on legacy solutions find it very challenging to develop suitable lending solutions for their SME customers while maintaining viable associated service costs. This allows smaller lenders to use lending tech and take up their new roles in the B2B finance lifecycle. Some do b2b loan origination and underwriting while partnering with banks for loan management. Others handle all aspects of commercial lending themselves. There are two main approaches, and we’ll go over them in more detail in chapter II. But on a high-level, it’s: Conclusion Automation unlocks a window of opportunity for commercial lenders including community banks & credit unions, specialized commercial lenders and alternative B2B lenders. Modern lending automation solutions allow you to set up automated credit scoring and decision-making based on the data you choose which allows to lower the credit risk and improve ROI With the average interest rate for a small business loan lying between 2.54% – 7.01%, commercial lenders who are agile and informed enough to offer better credit terms while cutting costs, stand to benefit immensely. Read this next This is a part of a 3-chapter series with all you need to know to automate any kind of commercial lending process. You can continue with this course here:
Automated loan decisioning – solving the transition from manual to automatic loan origination process
A recent McKinsey report shows that only 18% of banks are halfway or more done with their digital transformation. And even the large banks that managed to digitize during Covid are 40% less productive than digital natives due to organizational silos and the need to migrate with complex legacy infrastructure. These inefficiencies, delays, and overhead costs inflate the price borrowers pay for financing. For lenders implementing automation across the loan lifecycle, particularly in decision-making, this presents an unprecedented opportunity. Manually gathering and processing credit scoring data instantly puts lenders at a disadvantage compared to competition offering instant approvals. However, with modern lending technology, creditors automatically pull and process data from various sources, including credit bureaus and bank statements based on their own evaluation criteria, reducing decision time and mitigating risks. But first, wanted to check if you (or your staff) would like this white paper with all important details about TurnKey Lender’s AI-Powered Credit Decision Engine What data can lenders use in automated loan decisioning Data is the cornerstone of automated loan decisioning. The more diverse and comprehensive the data set, the more precise and reliable the decisioning process. Traditional data points used by lenders include But alternative credit scoring can provide even more insight in many cases where traditional data isn’t sufficient or accessible. It can include: How automated loan decisioning process works It’s easy to say that automated loan decisioning streamlines the loan approval process, making it more efficient and accurate. But here’s a high-level overview of how it works: Embracing this automated process significantly accelerates loan decisioning while reducing the chance of errors and bias. This sounds obvious until you realize the difference it makes. The average loan cycle time to this day is typically up to 1 week. For business loans it’s 4-5 weeks. Imagine the selling value of being able to offer same day approval. Using artificial intelligence and big data to grow a lending business According to the report on Artificial Intelligence and the Future of Financial Services by the New York Fed, AI could automate up to 40% of loan origination tasks, saving lenders an estimated $100 billion per year. Furthermore, AI could improve loan approval rates by up to 5%, leading to an additional $50 billion in loan originations, and reduce the time it takes to originate a loan by up to 50%, allowing lenders to focus on more complex tasks. Similar findings can be found in a mutlitude of other reports like this one by Moody’s Analytics, which underscores how automation can further reduce the time it takes to originate a loan by up to 50% and increase loan approval rates by up to 20%. In a nutshell, the consensus in the industry is clear: AI and automation are not just the future, but the present of the lending industry. The efficiencies they introduce in terms of speed, cost savings, and improved approval rates are pivotal for lenders aiming to stay ahead in this rapidly evolving landscape. But how real is it really? With AI, it’s often hard to instantly see if it’s really necessary or it’s used mostly for marketing buzz. In the case of digital lending, it is inevitable, and it is here. Simply because of the deep dependence of credit decisions on data which is becoming more and more accessible to business owners and technology vendors. Artificial intelligence gives us the ability to process immense amounts of data almost instantly. If you’re using the right approach to automating loan decisioning, these powers can be harnessed to do analytical heavy lifting for your team vastly improving the speed, depth, and accuracy of research. Most commonly these AI and Big Data are used to identify creditworthy borrowers who are overlooked or unfairly penalized in traditional scoring models, by analyzing non-traditional data sources. This is where TurnKey Lender’s Decision Engine shines most. Proprietary AI and Big Data technology praised by the industry, delivers superior automated loan decisioning. The Decision Engine is equipped to analyze diverse data sets, from traditional credit scores to alternative data like financial statements or online behavior. As a result, lenders using TurnKey Lender’s platform can confidently extend credit to a broader range of borrowers while minimizing risks. How TurnKey Lender automates loan decisioning TurnKey Lender is pioneering technological innovation in credit since 2014 with unprecedented lending intelligence and automation solutions. From the start, the key advantage of the company were its proprietary intelligence and sophisticated risk management and credit scoring solutions. So let’s delve into how TurnKey Lender enhances various aspects of your loan decisioning process 1.Modern automated underwriting with AI TurnKey Lender’s automated underwriting software makes use of artificial intelligence and machine learning to quickly and accurately gather and evaluate borrower’s creditworthiness based on the data and the criteria you select. 2. Advanced credit scoring techniques Our team has configured, tested and deployed hundreds of scoring models for our customers using the TurnKey Lender’s platform. And the more tech-savvy clients make scoring changes to adjust risk levels with new insight themselves daily. TurnKey Lender provides a flexible credit scoring system that’s adaptable to different lending scenarios and regulatory environments. Analyzing these vast arrays of borrower data let’s our loan origination software deliver reliable credit assessments and automated loan decisions. 3. Efficient loan decisioning for consumers and businesses Be it for personal loans or business loans, TurnKey Lender’s robust capabilities can handle both. The consumer lending software ensures a streamlined decisioning process for individual borrowers. On the other hand, for businesses, the commercial lending software caters specifically to the more complex analysis allows to use business accounting and CRM data for credit scoring too. 4. Holistic borrower evaluation for better risk management TurnKey Lender doesn’t just stop at traditional evaluation methods. For our clients, the most common alternative credit scoring data often includes: 5. Seamless legacy system integration Understanding the challenges of migrating from complex legacy systems, TurnKey Lender ensures its platforms can integrate smoothly. Whether you’re looking to update your underwriting or decisioning process, the
In-Depth Guide to Digital Transformation of a Bank
Even before the COVID-crisis and the overwhelming social distancing trend, traditional banks were forced to play catchup with nimble alternative and in-house lenders who offer a fully digital crediting process. Now, relying on clumsy legacy solutions and paper-based workflows is simply not sustainable. Large-scale lenders need to either embrace the digitalization of credit or they won’t be able to retain their customer base and grow it. Digital transformation for banks means making a brave and a long-overdue step toward intelligent automation and processes streamlining. An in-house or an outdated solution can turn this process into a nightmare with endless downtime, errors, and countless hours of development. But with the right tools, digitalization not only pleases the clients but also leads to a reduction in operational spending, an increase in efficiency, and growth in the core business. Customers have come to expect a certain level of immediacy with their online banking experiences, and lending has been the last major part of banking that hasn’t embraced the digital age. But now that the technology is developed and stable enough, banks, credit unions, and other traditional lenders can go through a digital transformation painlessly and give a fair fight to the alternative lenders. Digital transformation isn’t a voluntary process for banks. It’s the harsh new reality of the market that forces the hands of traditional lenders. For decades banks had an overwhelming monopoly on the lending market. Times have changed as banks started to lag in terms of the online experience they deliver. Digital transformation of a bank is seen as an incredibly expensive and lengthy process. But it doesn’t have to be like this. A while back, banks had every chance to lead the digital revolution by example. They had the resources to go fully digital and provide borrowers with a secure, fully online experience. But the lack of competition made them stick to old systems without transforming and reforming their enormously complex outdated processes. For far too long, they were led by the good-old “if it ain’t broke, don’t fix it” principle. The only problem is that it was “broke”. Due to that approach, the banks lost a big chunk of the marketplace that got filled by companies that lean into technology instead of tolerating it. Remember when ten years ago e-commerce was the buzzword everyone was using too much? Then providers like Shopify came along and lowered their industry entry barrier to the point where anyone could launch a well-designed easy-to-use online store within a day and on a limited budget. That’s what’s happening to e-lending right now with FinTechs like TurnKey Lender providing accessible and intelligent lending automation solutions for Unified Lending Management (ULM). With them, anyone from a retailer to an auto dealer, to an alternative lender, to a large-scale telecom, a credit union or a bank can launch a fully functional, end-to-end, intelligent, and easy-to-use automated lending operation. DIGITAL TRANSFORMATION TRENDS It’s easy to get caught up in doing things the old way and ignore the new trends and styles of doing business. But nothing speaks to people in finances as clearly as numbers. So here’s just a couple of stats to give you an idea of what the borrowers have come to expect from their lender in the post-COVID marketplace. Just 40% of consumers plan to return to the in-branch financial services post-COVID. – – Novantas New mobile banking registrations jumped by 200% in April 2020, while mobile banking traffic rose 85% – CNBC The most common method for applying for a small-business credit card or line of credit is a desktop or laptop computer, yet 60% of small businesses rate their bank as average or needing improvement during the digital onboarding process. – Deloitte Millennials now make 54% of their purchases online as of 2019 – Pure360 62% of global banks expect to be digitally mature in 2020, compared with just 19% in 2018 – E&Y Even in 2019, almost half of millennial respondents ages 18 to 34 said they’d consider moving their accounts to a digital-only institution – Marqeta. The unfortunate delays of modern lending and how your bank can tackle them Now that we’ve established that digitalization is inevitable, let’s look at how to tackle the transformation. The lending process for many modern financial organizations is surprisingly prolonged – especially given the current state of technology. Even with banking startups springing up left and right, offering a completely internet-based experience and mobile deposits, the world of retail lending hasn’t caught up quite as quickly. Online lending is out there, but – even with rapid loan approvals – the time to cash that many modern borrowers experience can drag on for up to nine days. This is true even at banking organizations that offer sleek, secure apps and instant mobile transfers, leaving customers wondering why the lending side of banking is still so sluggish to embrace digitalization. With so many popular banking features already digitalized, why are there still so many organizations that have neglected automation of their lending processes? Why do loans still take days to arrive in our bank accounts? The answer is logical. Lending is a way more complex process than simple money transfers and deposits with the time-consuming stages like credit decisioning and terms finalization.But it’s not just time to cash, either. Even though most banks have ditched many of their paper-based systems, loan origination and loan servicing often still require some sort of branch or team member intervention – including some of the most modernized banking organizations in the market. For traditional lenders, banks and credit unions the delays come from the fact that having digitized the easy things, they are far from automating complex processes like credit decisioning and generally, loan origination. These processes have too many touchpoints, the originators manually analyze the applications, run checks, evaluate risks, and finally make the loan decision – all using traditional data sources, workflows, and algorithms. Those that haven’t made it that far from the way our parents were evaluated.
How Much It Costs to Automate a Lending Business 2024
To get into the real lending game thirty years ago, one needed immense resources. And not just cash in store for funding the consumer or business borrowers, but also money for opening and maintaining offices and branches, originators, servicing managers, underwriters, collectors, analysts, etc. Even ten years ago, when FinTech craze was conquering the business world at full speed, only a big-name bank could afford to run a digital lending operation which would still be incredibly cumbersome and would take developing proprietary solutions for all elements of the lending process and integrating systems which would hardly be able to communicate with each other. Now, e-lending technology has caught up with the expectations of both the lenders who need to be able to deploy ready-made automation in a matter of days, and possibly even more importantly, the borrowers who require financing when, where, and how they want it. Lending overhead can be reduced or eliminated thanks to automated AI-driven underwriting, origination, and servicing, and collection; and there’s no need for branches maintenance in a world where all the lending-related operations can be done under the umbrella of a single lending management system, fully online. And even though lending technology isn’t as cheap e-commerce due to the complexities of credit scoring and numerous business logic options, the credit industry entry barrier got lower than it has ever been allowing a business owner to become a lender powered by cutting-edge software at a fraction of the price. In this post, we’re looking into the expenses a business will have to spare in order to enter the alternative credit, embedded finance, or traditional lending game. Of course, the final sum will differ for each lending business type, jurisdiction, and the scale of the launch. We’ll give you a rundown of what you’ll most probably have to spend money on to digitalize your lending business. Lending processes automation for digital lending Different lenders have different automation needs. Some only require a module for borrower evaluation, decisioning, and funds disbursement, some need a hand in servicing, some in the collection, and then some need automation of their entire lending process. Arguably, going with end-to-end automation of the lending process using one software solution is preferable since you want all the functional modules and integrations to interconnect smoothly and transfer data in between them effortlessly and without any losses. For a lending business, the end-goals of digitalization are: In order to achieve that, the perfect case scenario is when a lending business is willing to create their digital presence from scratch rather than build upon a legacy solution as it usually takes an enormous amount of effort to integrate outdated software with an end-of-the-line modern platform and maintain their compatibility in the future. Extracting and moving data from a legacy system may take some time, but in the long run, it’s well worth it. And solutions like TurnKey Lender provide you with ready-made functionality to import data into the system in batches, making up for simpler transition. That said, savvy lenders try to get as much automation as they can from a single provider rather than turn to different vendors for separate modules. This way you run lower risks of software failures, databases uncompetitiveness, and system downtimes. Not to mention, getting separate functional modules from different providers will require much more money and will increase the time to market of your new digital lending platform. Parts of the lending process you will need to automate to run a digital lending business include: As you can see, that’s a lot, but with the right lending automation solution it’s as easy or easier to run than an e-commerce store. Here’s what the basic loan lifecycle looks like in TurnKey Lender. But keep in mind, that for Enterprise clients, our software is capable of incredibly complex and unique flows configured in the no-code platform by our expert team. Now, the problem here is that the vast majority of lending automation providers don’t have a wholesome system that you can just plug in and work. More commonly they focus their efforts on some particular aspect like risk evaluation or servicing. At TurnKey Lender went another way and took our time to create a modular all-in-one solution. This way with us lenders can choose either variant: The final price depends on the type of lending operation, the size of the business, the amount of required system customization, and other influencing factors. You can reach out to our sales staff for a quote or get a free trial to see for yourself exactly what we can do for you. We have been working with lenders for several decades now. We know their pains and needs. To address them, TurnKey Lender team came up with an innovative pricing model in which the final amount depends on the number of loans customer issues with the software rather than a flat fee. This way the company stays invested and highly motivated to help every client achieve better results and help their business succeed. Keep in mind, that with products this complex, if someone tells you the exact price right away, it usually means that their margin is so high that it has the maximum possible customization included into the price they charge you even if you don’t use it. Lending-related paid integrations you’ll need Credit bureaus – If you already have a lending business up-and-running and just want to go digital, you already have access to data from one or more credit bureaus. But for a completely new lending operation, you’ll need to research your market and get access to credit bureau data to use in your credit decisions. Of course, many digital lenders rely on alternative borrower evaluation approaches, but most still factor in credit bureau data into their decisioning process to improve accuracy. Needless to say, different jurisdictions have different credit bureaus and the price of the plan will depend on the amount of data you’ll need, detalization, accuracy, number of
Offering BNPL product or Underwriting Cash Advances? Either Way, TurnKey Lender Has You Covered
In just two decades, digital technology has gone from zero to connecting half the world’s population, and in the process democratizing and decentralizing the distribution of credit to consumers and other goods and services purchasers. With banks losing their grip on the levers of lending as a consequence of this leveling, other organizations — from pizza parlors and doctors’ offices to community-development funders and capital-equipment providers — have stepped up to provide credit to their customers directly, efficiently, and securely. Learn about the capabilities of TurnKey Lender Platform for streamlining any kind of embedded finance operations In particular, many businesses and other groups have discovered they’re best served by one of two established financing models. This loan divides a purchase into multiple equal payments, with the first payment typically due at the point of purchase. BNPL goes back to 1800s America as a way for cash-strapped consumers to make payments on relatively big-ticket items like furniture and farm machinery — and, unlike the classic “layaway” plan, they get to take possession of the object in question before it’s paid off. As a form of “business factoring,” an MCA is a lump sum that’s exchanged for a fixed percentage of the borrower’s sales receipts, with daily payments made over periods, typically, of less than two years. Often structured as a sale of future revenue cleared and settled via credit and debit cards, MCAs aren’t technically loans, but investments. While garnering more and more attention in the marketplace, these digital-lending models still help businesses stand out from their competitors in a field with lots of room for growth and innovation. “But configurability is a must” for success in direct lending, warns Elena Ionenko, co-founder and COO of TurnKey Lender, a financing-technology pioneer with operations around the world. “For BNPL and MCA providers to make credit available to customers without taking on too much risk, they need hyper-flexible origination, no-code configurability, and a credit ‘decisioning’ engine that can sort through large datasets to determine first if financing should be granted, and second what rates and other terms make the most sense on a case-by-case basis.” Buy now, pay later considerations BNPL providers tend to fall into one of two categories. The trouble is many third-party e-lending providers — who don’t share your understanding of your customer base — render lending decisions that are too harsh, too lenient, or unsuited to the needs of the niche you’re targeting. These shortfalls can expose you to unwarranted risk either way. Luckily, there’s a better alternative for companies in both camps. “With TurnKey Lender, businesses that want to keep origination and collections together in-house, and businesses that need customization to serve a particular niche — whether that’s in reference to a niche business catering to a particular industry or businesses whose consumer-oriented customers have particular needs — can leverage the power of artificial intelligence,” says Ionenko. “Coupled with configurability that doesn’t require coding and interoperability with system software, TurnKey Lender’s AI sets the standard for truly independent lenders.” Merchant cash advance considerations Merchant cash advance solutions are especially attractive to gig workers, who, like some app-based workers — think Doordash or Lyft — seek a degree of income predictability. In such cases, MCAs make perfect sense to workers and app providers alike. TurnKey Lender’s MCA software: Financing application workflows are based on MCA use cases and suit the key verticals of the merchant cash advance industry, whether with gig-workers or large merchants. An MCA 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, or monthly basis. In addition to streamlining income for gig-economy workers, MCA providers get a built-in decision engine that leverages proprietary machine learning algorithms and deep neural networks to process real-time and historic bank statement data in addition to a configurable array of alternative (and largely behavioral) scoring inputs. Big data and AI ensure speed and accuracy in risk evaluation and finance decisioning. More choices for digital-era customer financing The AI use case for MCA providers doesn’t end there, however. With analytics derived from underwriting criteria as well as performance and behavioral data, MCA providers can extend multiple offers that take stock of rates, remittances, and repayment schedules. We’ve mentioned that, because innovation is a constant in financial technology, a hosted software solution makes sense for MCA and BNPL providers alike. After all — Bottom line, organizations that provide either BNPL or MCA financing can run the leanest, most responsive, and most efficient operations using an embedded software solution, according to TurnKey Lender’s Ionenko. “The only question — and this is where we can provide guidance — is whether it makes more sense to choose our Transformer or our Standard platform,” she says.
White paper: How to automate every part of your commercial lending process
The World Bank has done the math – the international B2B lending market has an unmet demand of approximately $5.2 trillion a year. With $1.4trillion more in the US alone. But despite this enormous opportunity, commercial credit is still viewed by many would-be B2B lenders as something too complex for them to efficiently automate. This is why commercial lending space is dominated to this extent by national and international legacy players. But just as consumer lending saw a revolution in recent years in terms industry entry barrier, now every part of the B2B finance space is going through the same transformation. Armed with readily accessible intelligent automation tailored to your processes and decision logic, all common B2B lending models and credit products can run largely on autopilot while you focus on the business development side of your operation. In this white paper we’ve gathered the answers we at TurnKey Lender have been gathering since our first commercial lending project. Hundreds of successful lending operations later, here’s what you need to know. Part I: How to enter the commercial lending space (10 high-growth business lending sectors) Part II: All you need to know before you automate your commercial lending process Part III: B2B credit automation that cuts operational costs and minimises credit risk Download the in-depth commercial lending process automation white paper that answers all the questions you may have in the process.
Part II: All you need to know before you automate your commercial lending process
What is the cost of a mistake or a delay in commercial lending? Let’s put a price tag on every wrong b2b loan decision. Average SME loan sizes shed some light. For a large bank an average is $564k, for a small bank – $185k and for an alternative B2B lender -$80k. And yet, over 30% of business finance applications are declined because of insufficient credit history data. This means that a business borrower may be viable and good for the money, but the organization simply can’t service them because of their outdated processes and scoring methods. A B2B lending operation that isn’t automated efficiently, isn’t only losing money due to poor digital experience for the borrowers. Even though, business borrowers do deeply appreciate smooth and effortless experience and will pay extra for usability. But in addition: But before we get to the details of this topic, I wanted to share this in-depth commercial lending process automation white paper that answers all the questions you may have in the process. Key parts of the commercial lending process that require automation First, let’s get a clear shared vision of the important elements of any commercial lending business that will require automation. How to automate commercial loan origination and credit scoring Commercial loan origination and credit scoring are notoriously complex processes. And what commercial lenders need to pay most attention to too when choosing their lending technology provider. Flexibility of the scoring model and decision rules, as well as granularity with which you can build credit products and loan origination flows define a b2b lending business. Once the loan is analyzed, processed, and approved, there shouldn’t be anything for you to worry about, because you are confident in the gatekeeping that is your origination and underwriting. However, with the modern automation tools it is now possible to configure a commercial origination and underwriting processes intuitive for the borrower as well as reliable and stress-free for the lender. You can see a video example or how TurnKey Commercial handles these processes below. Many lenders use the fully automatic loan decisioning process in TurnKey Commercial. 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. How to choose the right commercial lending automation for your b2b lending business Whether you start a commercial lending business from scratch or manage an existing one, the need for meaningful digitalization is clear to everyone. However, stakeholders may be anxious about the changes to the status quo the new technology will bring and how their role will change. But without an all-encompassing centralized lending infrastructure, it’s not feasible to keep track of all incoming data and use it to make informed decisions automatically on all stages of the B2B loan’s lifecycle. Choose your approach to commercial lending automation TurnKey Commercial is a proven one-stop platform that grows your loan portfolio while cutting operational costs and risks. Over the years, we’ve condensed the most efficient and optimized ways to automate commercial lending and packed it in a solution with the record time-to-market. TurnKey Lender platform has a proven track record of credit automation for lending businesses in 58 countries who currently service over 50 million borrowers. What commercial lending automation can help you achieve Most commercial lenders that come to us, look for a combination of these three main things: And we excel in making all of those a reality for any kind of B2B lending business. Book an intro call with us to try it on. Read this next This is a part of a 3-chapter series with all you need to know to automate any kind of commercial lending process. You can continue with this course here: