A few of the fintechs in the online lending space are leveraging technology and data insights to manage this balance.
Lending is an involved business with many levers and stakeholders. Traditionally financial institutions have created a healthy system of weights and counterweights that ensure business growth and credit quality go hand in hand.
The most successful lenders have consistently managed this balance and have also contained both the amplitude and frequency of swings on either side of the balance.
A few of the fintechs in the online lending space are leveraging technology and data insights to manage this balance. Listed below are some of the interesting ways they are deploying to differentiate.
Back tested Credit Models: Fintechs have created efficient credit models and are using technology to consume and analyse data digitally, what they lack is enough data points to build credibility around the models.
The loans need to run through their full term to start giving indications of the effectiveness of these models. While certain companies spread their bets across a basket of models hoping for the law of averages to work in their favour, others find smarter ways to address this by back testing the model on existing data with the financial institutions.
Fintechs that are accelerating the pace of curating and maturing their credit models through such data exercises have a better chance at brewing that special magic potion.
Mining new & traditional data sources: Reliance on non-traditional data sources like mobile bills, social media, online behaviour of customer, even psychometric variables is the other area of innovation by fintechs. While data sets of some of these variables exist but they too need time or accelerated ageing to establish correlations with reasonable degree of confidence.
In the meantime, some fintechs are generating new insights by passing the existing traditional data sources through a different prism by leveraging technology.
They are enabling machines to read through pages of bank statements, bureau trade lines, ITRs, TDS records to generate insights and indicators that were difficult and time consuming (not impossible) to do in the traditional manual method of underwriting. Fintech would emerge wiser if they figure strong combination of traditional and alternative sources instead of full reliance on alternative data.
Technology platform: This one is a no-brainer. The one thing that is going to differentiate the men from the boys is the ability to use technology in a frugal, flexible and nimble manner to slice and dice the data and then to put it together in a manner that is consumable and insightful.
Some fintechs have scaled business without investing a lot in building a robust technology stack and they have increasingly started to resemble the traditional lenders. While there are others that are focused on building the tech stack and/or the data pool. The winners of tomorrow in my opinion are going to be the players that have their heart and soul in the technology stack and on data sciences.
This is clearly getting played out in mature markets like US wherein the market caps of the erstwhile darlings of fintech industry that focused on relentless growth at the expense of robust platforms and systems are being hammered.
Partnerships and New Product Development: Another key in creating differentiation and competitive advantage is access to data sources. There is immense interest in building deep strategic partnerships with multitude of corporates and platforms that have data which can work as proxy to the profile or the financial health of an individual or a small business.
Deep integrated partnerships involving not just the anchor and the fintech platform but also lenders and other service providers are getting signed up. Fintechs are creating an edge for themselves by focusing on specialized products aimed at the specific needs of the borrowers like Supply chain financing, cash flow based financing, imputed revenue financing, transaction data and platform data based financing.
Successful online lenders will have at their core data, insights and technology. How they leverage these insights to create meaningful origination capabilities, product propositions and credit models with determine which of these fintechs have the balance between growth and credit perfectly aligned.
By Vishwadeep Sharma, Chief Business Officer of CoinTribe Technologies Pvt. Ltd.