Category : Fintech

Will revolutionary digital payment trends create a future or just a fad?

Sep 2,2020 / By Vineet Ahuja / No Comments

What lies ahead in the post COVID19 era?

It is believed that the world of payments has fundamentally transformed over the last few years and is set to change even further. The industry is witnessing an accelerated growth in electronic payments with the advent of new and disruptive market players. As per the World Payments Report 2019, growth of non-cash payments is set to skyrocket globally, with digital payments reaching at more than $1 trillion transactions by 2022. Additionally, the on-going Covid19 crisis has fueled the need to opt for non-cash payments. Digital payments once a convenience, is now seen as a necessity for consumers across the globe.

Even before the coronavirus crisis, the global digital payments industry had been reshaped by technology and redefined by regulation, with the emergence of new economic powers, and changes in the global currency landscape. Most importantly, payments refocused from a commoditized proposition to a strategic, value-adding solution; one that is offered with greater focus on the broader commercial and transactional context within which a payment (or a transfer of value) takes place.

Indeed, the world of payments in 2020 will look very unlike as it was, as market transformation had already begun. The competitive landscape will be redefined by the entry of non-traditional providers, the evolution of new solutions provided by financial institutions, and the development of strategic alliances that cross traditional sectoral boundaries. Besides transformation, there will be major convergence around products and solutions linked to payments; around technology platforms that will be driven by innovation in nature and reach.

In this article, we will take a closer look at some of key trends that will change the global payments outlook beyond 2020 and how digital payments will create a future in itself. But, before we go through the major trends, let us identify some of the active digital payment methods already available to consumers:

Digital payment methods for seamless consumer experience

Convenience is the key for extensive usage of banking cards

Banking cards such as Mastercard, VISA, Credit and Debit cards are the most widely used method for online payments. Consumers conveniently pay using their debit or credit card on online platforms as well as in-store. As per a recent PWC report, transactions happening through cards had seen an upward trend as there were concerns around transmission of virus through physical currency boosting online transactions. While in the US, credit card usage has made an upsurge to a level that many finance firms also opt to develop mobile applications for their customers to manage their credit card transactions and other details.

Financial inclusion for underbanked through USSD

USSD is the most innovative payment service that works on an Unstructured Supplementary Service Data (USSD) channel. It is introduced specifically for the underbanked who does not have the convenience to use the mobile banking or internet banking functionality. USSD only requires to dial *99# through your mobile device and enter the details asked to initiate banking services, he/she will be able to check their bank balance or get to know about their bank account statement.

Powering multiple banks through single application

With recent real-time payment systems available like UPI, customers can easily send and receive money or make online payments. UPI or virtual payment address has been one of the most widely used digital payments methods. It is a system that powers multiple bank accounts into a single mobile application, merging several banking features, seamless fund routing & merchant payments into one hood.

UPI will only require a Virtual Payment Address (VPA) to make the payment successful. The PWC report states, post Covid19 scenario has resulted in a surge of UPI transactions for essential services including the QR Code based payments.

International funds transfer via Fedwire and CHIPS

The US payment clearing and settlement process consists of 3 different systems: Fedwire, CHIPS (Clearing House Interbank Payment System), and ACH (Automated Clearing House). Both CHIPS and Fedwire are considered for wire transfers and for large value domestic and international USD payments. While ACH is considered for low value but higher volume domestic payments.

CHIPS is the largest private-sector, US based, money transfer system. It is a competitor as well as a customer of the Fedwire service of the Federal Reserve as it allows banks to make transfers of international payments efficiently, without the need for bank checks. When it comes to large transactions, CHIPS is the main clearing house in the United States. By using electronic bookkeeping entries, it settles, on an average, more than $1 trillion USD every day. An average transaction using CHIPS is over $3,000,000.

Many people prefer CHIPS to the Fedwire service because it’s more affordable, even though it isn’t as fast. Transfers could be made internationally or domestically, but usually of large sums of money.

Introducing FedNow for faster P2P payments

In the U.S., the Federal Reserve believes that the U.S. payment system is in the midst of its own modernization transformation. They have urged US banks to look at what is happening around the world, including evolving consumer payment preferences, and begin to create a real-time ecosystem that has the ubiquity, safety and convenience of legacy payments networks. Last year around this time, the Board of Governors of the Federal Reserve System (Board) issued a notice and request on its determination that the Federal Reserve Banks (Reserve Banks) should develop a new interbank faster payments system named as “FedNow” service.

The Board expects FedNow to be an interbank real-time gross settlement (RTGS) service with integrated clearing functionality that can serve as the infrastructure upon which other parties could build faster payment solutions. FedNow would involve real-time payment-by-payment settlement of interbank obligations through debits and credits to banks’ accounts at the Reserve Banks. The service could be designed to support credit transfer use cases, including P2P payments, bill payments, and low-value B2B payments (the service initially would support payment values up to $25,000). The Reserve Banks’ has put forth the launch date of this new system in the year 2023 or 2024.

Mobile wallets enables us to carry cash in digital formats

Recently, with the advent of Paytm, Google Pay, Phone Pay, Amazon Pay etc, mobile wallets have gained more popularity as it has become a way to carry cash in digital format. It is a virtual wallet service that is available for usage once the application has been downloaded from the app store.

From cab drivers to businessmen, this payment method is used by all as they are easy and convenient. As mobile wallets let consumers recharge their mobile, DTH and data card, pay utility bills, compare and book flight tickets, hotel bookings, shop online, buy movie tickets, avail great offers, and send money to anyone via their contact list on smartphone. Various mobile wallet applications also provide cashback facilities and other discount coupons to consumers.

Internet banking or online banking has long been doing the rounds

Internet banking has been in the business for years and almost all the government as well as private banks provide internet banking facilities to its customers. Internet banking allows us to transfer funds, check account statements or open new accounts online. One can carry out all their banking transactions online by logging in with your username and password. Internet banking is usually used to make online fund transfers via NEFT, RTGS or IMPS and customers can avail all these facilities by logging in their website.

Remote transactions enabled by mobile banking

Mobile banking is also one of the most widely used digital payment methods stirred by higher usage of smartphone and tablet. It is also one of the easiest payment methods enabled by an application, provided by the banks or financial institutions. Nowadays, each and every bank provides its own mobile banking application which is available on all the operating systems like Android, Windows and iOS platforms.

To sum it up, all of the above payment methods were already in place for consumers even before the COVID19 hit. But now as the crisis has changed the industry and market dynamics dramatically, a recent Accenture report identifies how COVID-19 impacted the payments industry influencing payment providers’ present as well as future actions.

The report mentions these points:

Payments markets affected badly due to COVID19
Consumer spends have drastically slowed down
Payment companies to re-think short term priorities
Cash transactions have declined significantly
Tokenized payments on the rise
Conditions are highly favourable for frauds
Embedded payment experience will be encouraged
Payments experience that offers more control will be accepted by consumers and businesses

Hence, it is inevitable to say that the payments industry especially the payments providers will have to relook and redefine its strategies to come up with cutting-edge tech-focused payments methods. They will have to achieve the goal of digitization of payments which provides an easy, convenient, fast, and secure payments experience to consumers. To attain this, what are some of those digital payment trends that will make it big in the year 2020 and will require payments providers to consider as their offering. We will take a look at each one separately:

Digital payments trends to become trailblazers in 2020

Biometric authentication will emerge rapidly

Biometric authentication will be a fast moving trend that will rapidly emerge in this year. Biometric authentication is a verification method which involves biological and structural characteristics of a person. Fingerprint scans, facial recognition, heartbeat analysis, vein mapping, and iris recognition are some of the verification methods included in Biometric authentication.

With the rise in the problems of identity theft and fraud, biometric authentication can become a reliable and secure option for all the digital payments to take place going forward. As per Juniper research, mobile biometrics will be used to authenticate $2 trillion worth of in-store and remote payments annually by 2023, driven by the rise of WebAuthn standards adoption.

Biometric authentication is a unique and important digital payments trend as it incorporates and provides accuracy, efficiency, and security under a single package.

EMV technology leads a shift from cards to codes

Earlier, we had bank accounts that were simply recognized by random combinations of unique digits present on card. However, the EMV technology (Europay, Mastercard, Visa) has been picked up gradually and introduced in the US markets with more computerized and secured mechanism for payment.

EMV uses a smart chip instead of a magnetic stripe to hold the data that is required to process a transaction. The technology is known for using codes that vary each time a transaction takes place. A smart chip has the power of a small computer, allowing it to run applications that can perform advanced authentication.

The chip’s processing power, along with its capacity to store more information means that EMV cards can hold encrypted data, perform cryptography, and generate a unique code assigned to each transaction. Hence, it becomes virtually impossible to make a counterfeit EMV card because the chip is tough to tamper or clone with.

Increasing demand for Mobile Point of Sale

Mobile-point-of-sale (mPOS) is a revolutionary technology for all the merchants having their bricks-and-mortar structures and in-store cash payments. The mPOS gives them the freedom to operate in areas where they can find more customers and move remotely with their products or services. Small and medium business owners and retailers can move to various places like concerts, trade shows, events where they can seamlessly accept payments from their customers.

Additionally, the mPOS technology also enables in-store payments more streamlined and flexible by replacing the central checkout areas with sales staff equipped with mPOS devices. It is surely going to be one of the most widely used digital payment technologies as it enables contactless payments and speeds up the checkout process.

Conversational UI to make your payments

Nowadays, home assistants, conversational devices or smart speakers are widely used by customers as it allows users to give voice commands to a speaker and receive a voice response in return. The user can give voice commands for various things such as getting weather updates, traffic updates, ordering from Zomato or booking a cab from Uber.

We are all aware of Amazon Alexa that came in the year 2014, then joined Google Home and Apple followed the race in the year 2016 and 2017 respectively.

The speakers which evolved from the smart assistants were primitive in nature as they were restricted to just phone devices. However, with the growth of home automation, the smart speakers also started to go mainstream. According to Statista, 35% of users use smart speakers for buying essentials like home care, groceries, and clothing.

Image source

Interestingly around 28% of the people used smart speakers for sending money or making direct payments. This is not a huge portion as fewer people choose to make payments over smart speakers due to the security reasons.

However, the future looks promising for smart speaker payments as a Business Insider report suggests that the smart speakers usage will rapidly grow from 18.4 million users in 2017 to a whopping 77.9 million users by 2022.

Banks will move towards AI and machine learning powered payments

Whenever it comes to payments, security is the most crucial element. People will always prefer using a payment method that has a high security. That’s the reason why payment technologies won’t be able to go forward without developing a top-grade security. Banks receive a lot of customer details and payments data each day and to detect all the possible threats within seconds, banks need to empower themselves with AI and ML.

The best example of this is when you receive a text from your bank asking if the transaction was done by you or fraudulent. This cautionary message helps the user and bank to prevent a major mishap. This is an automated message sent by a machine learning software to understand the authenticity of the transaction you took place.

Contactless payments using the NFC technology

Contactless payments are another payment method which will see a high growth trend in the near future. As per its name, contactless payments allow the customers to simply wave their smartphone across any QR code reader. This particular digital payment method of waving has proven to be way faster and convenient than making card payments or cash transactions. Especially now during the COVID19 phase, contactless payments will be the way to go for customers where maintaining hygiene standards and social distancing becomes a norm.

Contactless payments has also proven to be a more secure technology as it transfers the encrypted data to the point-of-sale device instantaneously. Many mobile wallet providers like Paytm, Google Pay, Apple Pay etc have their contactless payment system in their respective applications.

Contactless payments are possible with the NFC (near-field communication) technology. That’s the reason why they are also termed as NFC payments. The benefit of the contactless payments has been realized by retailers globally and the market size for contactless payments is expected to grow from USD 10.3 billion in 2020 to USD 18 billion by 2025, at a CAGR of 11.7%, states a recent report by Business Wire.

Cryptocurrencies and blockchain based digital payments

Apart from the above list, other digital payment methods will also emerge as a result of the vast technological possibilities. For example, digital cryptocurrencies will be viewed as a major trend among Gen Y who are more profound to use new-age technologies. Cryptocurrencies will revolutionize the whole ecosystem of investments and monetary financing due to its instant and borderless nature of transactions. It was in 2019 that JP Morgan Chase, the largest bank in the US announced to create and successfully test a digital coin representing a fiat currency. The JPM Coin is based on blockchain-based technology enabling instant transfer of payments between institutional clients.

Traditional financial institutions and banks need to act swiftly to technological developments

In an industry traditionally served by banks, these new and innovative non-bank payment providers are entering the market and rapidly gaining ground. Technological development could easily accelerate to a tipping point if banks do not act swiftly and decisively, positioning themselves to offer attractive, value added propositions to both individual and corporate customers.

In fact, a significant threat is posed by large technology and social media companies, for example Facebook introducing Libra to make crypto-based payments. If these companies can leverage, even monetise, their considerable customer reach by presenting attractive, straightforward and secure payment propositions alongside their other non-payment offerings, they could succeed in disintermediating banks, particularly in growing segments of the global payments business.

It is also of particular relevance as a young, ‘tech-savvy’ generation starts to take on leadership roles in global commerce. The new generation of leaders, all very familiar with the world of social media and e-commerce, will expect to run their businesses using 21st century tools in the post COVID19 age.

Customer Experience Fintech SAP, Business Process Transformation UX/UI

Customer Experience in FinTech and FinServ: the opportunity to build loyalty is now

Jun 2,2020 / By Srinidhi Rao / No Comments

Across the age spectrum, more people are opting or are at least open to using financial apps for managing tasks ranging from daily budgeting, stock investments, banking services, payments, or insurance needs. In 2019, consumers accessed financial apps over a trillion times. China, India, Brazil, United States, and South Korea were the Top 5 nations in terms of total sessions in finance apps.

Consumers love finance apps

According to the 2020 Mobile Finance Apps Report by Liftoff and AppAnnie, the install-to-register rate of finance apps is a healthy 46.2% indicating the willingness of users to not just download such apps but engage with them too. The install-to-purchase rate dips to 19% pointing to a lot more work needed to encourage usage. Entrepreneurs and the start-up community are betting big on FinTech, as well. Many of the breakout apps of 2019 were in FinTech from digital banking (e.g. Nubank), payments (Google Pay), and loan disbursement (e.g. KreditBee) to all-in-one super apps like PhonePe.

Traditional banks, long dependent on brick and mortar retail-based banking are trying to keep pace with changing consumer behaviors and digital experiences. Data shows that growth in average MAU from 2018 to 2019 was higher for FinTech apps than for legacy banking apps.

Change is the only constant

Fact is, the mobile app revolution, and how it would affect businesses, was a disruption that many industries did not foresee. Consumer preference and user experience in one domain has had an impact on other domains too. For example, urban mobility apps such as Uber have raised expectations of user experience for all transactional consumer apps. In that context, legacy banks must compete long used to brick & mortar banking are trying keep pace with new-age digital banks and FinTech companies in terms of ease-of-use, design aesthetics and ‘cool quotient’.

According to UserTesting of UK, a company focused on testing as a service, consumers were drawn to FinTechs for 3 major reasons: In-demand products and services, trusted recommendations and ease of use.

Utility bill payments, peer-to-peer lending, bank transfers, and more were made possible by FinTech apps, many of which started as digital wallets or simple payment services. The social buzz and recommendations from friends helped these apps gain traction. Ease of use is another factor that works in their favor.

Traditional banking apps have acquired a reputation, rightly or wrongly of being difficult to use. According to research from US-based finance portal. PAYMNTS, 54.1% of consumers surveyed said they would use their banking apps “much more often” if only they had more control over the authentication requirements of their apps.

Across financial services, especially banks, one can observe these common features:

The FinTech and FinServe industries have two unique characteristics – the tasks consumers perform can be clubbed as ‘routine’ and ‘risky’. Product owners need to address these through a mix of technology and human instinct. In other words, Artificial Intelligence for the routine and Emotional Intelligence for the risky. Banks are already using AI technologies to automate routine banking tasks such as resetting passwords, checking account balances, transferring funds between accounts or paying monthly bills.

According to a Bain & Co report, consumers prefer digital channels, but they give higher Net Promoter Scores to companies that allow customers to speak with a representative to resolve a problem. Emotional intelligence has a role to play especially in providing a personal service experience during a stressful situation.

The post COVID world and financial services

Shifts in consumer behavior during uncertain times, such as the current global pandemic, accelerates the need for digital even more. According to a recent report “Credit Union Innovation Playbook” by PYMNTS, “the COVID-19 pandemic has led to a remarkable shift in the ways consumers want to bank — away from brick-and-mortar branches — making it much more crucial to improve digital banking services”.

It is not all black and white when it comes to consumer behavior towards financial services. The one factor which legacy brands enjoy, at least among the older consumers, is familiarity and trust. Longevity and the comfort factor of seeing physical branches dotted across the city subliminally can create positive brand equity – a feeling of ‘having been around’. In contrast, new-age digital banks may have to work harder to earn the trust of consumers. 51.1% of credit union members in the US cite “trust” and “risk of fraud” as the biggest barriers to trying new-age banks. According to EY, ‘responsible banking’ is more important than ever as consumers indicate their ‘future purchasing decisions will be impacted by banks actively supporting the community, being transparent in all they do, and ensuring they are doing good for society’. What does all this have to do with customer experience? The short answer is: everything. Here are the reasons why:

The business success of financial services and FinTech brands will increasingly depend on how they master the digital experience. Genuine, meaningful product differentiation is difficult in the highly regulated banking and finance industry. Enterprises are faced with two challenges: How to drive customer engagement with limited differentiation at the product level while increasing volume and velocity in customer acquisition? The answer is crafting a superior customer experience across all digital channels.

Retention is the new growth. Enterprises know that new customer acquisition comes at a high price. However, retaining and growing the lifetime value of an existing customer (active or inactive) is usually a cheaper way to increase revenue. Design Thinking methodologies come into play here. Implementing strategies to encourage loyalty (and therefore retention) can often be a more successful strategy than chasing new audiences. Citibank’s research found that 83% of consumers (that number goes up to 94% among Millennials) are more likely to participate in a loyalty program if they can access the program easily from their mobile phone.

Now more than ever before, Empathy is the key. It is said that all our decisions in life are driven by the emotional brain, rather than the rational one. One would imagine it is even more so in the current times. At Robosoft we strive to understand the emotional triggers that act as barriers or motivators for actions when interacting with a digital product. When working on a FinTech product even a simple task of paying bills can evoke a diverse set of emotions.

When working on a peer-to-peer lending product for the US market, we created an emotional map of a user which looked like this:

In a world that is increasingly adopting remote working, marketers may not be able to get a first-hand feeling of consumer motivations or behavior. In this context, getting the customer experience right throughout the consumer buying journey is a critical building block for brand loyalty. The key is in approaching product creation from the POV of building long-lasting customer relationships rather than regular transactions.

Human instinct and customer experience

The advertising legend Bill Bernbach once famously said in the context of marketing communications that ‘It took millions of years for man’s instincts to develop. It will take millions more for them to even vary. It is fashionable to talk about the changing man. A communicator must be concerned with unchanging man, with his obsessive drive to survive, to be admired, to succeed, to love, to take care of his own.” One can extrapolate this observation to digital experiences too as product owners should remember that basic human instincts will remain unchanged and are common across domains.

In the context of customer experience which can drive brand loyalty there are common principles applicable across categories – be it FinTech, OTT streaming services or food delivery apps. Some of the principles applicable to Financial Service are:

Focus on users over products: at a recent webinar, famous author Seth Godin spoke about enterprises designing more for their benefit than that of the users. As an example, he mentioned how easy it is to remember secure 6-digit numerical passcodes for apps. But when an enterprise introduced a seven-digit numerical passcode citing seemingly extra security they have not considered the friction it is likely to cause. It is an example of doing what matters to the enterprise first rather than the user.

Image source

Design Thinking workshops and user research tools help gain insights into consumer needs. Remember, users may never be able to explicitly convey or may not even know what they need. It takes expertise to interpret their pain points and derive meaningful insights that can be put into action.

Think experience, then features: it is always tempting for product owners to pack in all the features that they think are ‘nice to have’ or likely give a competitive edge. But what is sacrificed is simplicity which could lead to a sub-optimal product experience. At Robosoft, our strategy & design teams work closely with product owners in enterprises to prioritize features that are important to the user at every stage of the product roadmap. We must also remember that we can’t have it all – we have to lose some to gain some. In a banking product, a balance needs to be sought between convenience and security.

Create an emotional connection: just as some movies, books, and songs evoke an emotional response in us, digital experiences have a potential too, in their own way. It doesn’t mean that using a bank’s mobile app should move one to tears (may happen if it is out of frustration!) just as some movies impact us emotionally. It is about creating a subtle feeling of accomplishment, productivity, safety or whatever is the relevant parameter for that category and product.

Key emotions that a Financial app should address:

Copywriting for UX is also an aspect which product owners need to pay attention.

‘UX copywriting, or user-experience copywriting, is the act of writing and structuring copy that moves digital users, like visitors and customers, toward accomplishing a goal in an intuitive way.’

There is both science and an art to copywriting which helps accomplish tasks better. Tone of voice and brand personality can also be reflected in the copy. The language used in say, a small-loan lending platform will vary from that of a high-end wealth management app.

Provide clear and precise directions: unlike say a trivia game where confusing instructions could lead to minor irritations and friction, financial services deal with a lot more ‘serious subject of money. Confusing navigation or language can lead to errors that can cost money to the user and erode trust in the brand.

Use analytics regularly to give users what they want: baking analytics into the product at the very beginning ensures that the right metrics are tracked for continuous product improvement and personalization.

Integrate technologies seamlessly: both consumer-facing experiences and backend processes can be made better by emerging technologies. Blockchain, robo-advisors, process automation, voice, and chatbots have roles to play in improving customer experience. In the post COVID world, video banking may see a surge as well as the need to invest in

Provide an intuitive & interactive experience: According to Interaction Design, ‘a user is able to understand and use a design immediately—that is, without consciously thinking about how to do it—we describe the design as “intuitive.” In the context of FinTech or FinServ apps the process could start right from the login method, conveying a sense of safety & privacy, using AI to monitor and predict transactions and more.

Be inclusive: user experience which works for all must be the mantra when crafting digital experiences. Websites and mobile apps that understand the needs of visually or hearing impaired and other eventualities must be considered. Uber’s consumer app, for example, notifies the commuter of any special needs the driver might have. Some food delivery brands think not only of the consumer but of the delivery executive too by urging the user to consider a tip. Food delivery apps like Zomato also highlight the profile of the delivery executive, giving a brief summary of his or her aspirations thus making the experience more humane and inclusive.

In sum, the unchanging human instincts we spoke about earlier, the‘obsessive drive to survive, to be admired, to succeed, to love, to take care of our own’ has come to the fore more than ever. The recent global pandemic has added new dimensions to customer experience in financial services. It is a great opportunity for enterprises to build a competitive business edge through great customer experience.

Banking, Financial Services & Insurance Fintech Mobile Technologies

Customer Experience: The Next Battleground in Digital Lending

Sep 16,2019 / By Srinidhi Rao / No Comments

The banks and lenders today face a stern test of how they can reduce the customer attrition rate for their institutions. Today’s borrowers expect the onboarding and lending process to be fast and convenient – more and more customers now expect it to be done digitally without an actual visit to the lender’s premises.
It is the driving factor behind lenders going through a digital transformation for their services to provide the best customer experiences.

Digital Lending has been an exponentially growing global phenomenon over the past few years. It may have been initially dismissed as a ‘buzzword’ with no universally articulated definition, but the bold foray of Fintech startups and tech giants into the grey space has resolved all market doubts.

And the result has been spectacular.

The global market size of digital lending platforms reached a value of $8.6 Billion in 2021 and expected to reach US$ 20.3 Billion by 2027. This translates to a Compound Annual Growth Rate (CAGR) of 15.39% during 2021-2027.

Increasing consumer demands and expectations have created new markets for alternative methods of borrowing money. And businesses have been quick to understand the importance of customer experience as a differentiating factor. They are proactively leveraging the opportunity to drive efficiency, cut down on costs, and expand.

The competition in the post-pandemic digital lending market is intense, especially for the prime Millennial segment. With a plethora of such players in the market today, it is indeed becoming increasingly difficult for companies to differentiate their offerings. This is precisely where customer experience takes precedence. A great digital customer experience involves understanding user needs, creating a strategic design framework, creating design with emotion and empathy among others. With all other key variables being in a level field, customer experience in digital lending is set to be in the driving seat.

Digital lending: primary drivers of growth

Here’s a close look at the primary factors that are driving this revolution and contributing to superior customer experience in digital lending today:

Market Impact of Millennials and Generation Z

An influx of tech-savvy Millennials and Generation Z consumers into the financial markets has brought a fundamental shift in consumer ideologies and behaviors. ‘Instant gratification’ is the key for them and digital habits such as online food delivery, cab booking, and grocery/essential shopping has only reiterated this mindset. They have a stronger emotional connection with technology and new-age brands such as Apple, Uber, Amazon, and Google. The perceived ease of use and delight of digital-only products (e.g. Dropbox) is sought to be emulated across all digital experiences.

Hence, this is both an opportunity and a threat for financial organizations. To stay relevant in the market and fend off competitors, there was a dire need for both short and long-term financial instruments that fit into the profiles of such consumers.

Data Collection and Associated Analytics

The proliferation of smartphones in consumer habits is driving more than half of the traffic on the Internet today. With access to a number of digital services, engagement is being driven like never before. The result is an accumulation of data points that can be smartly leveraged by financial companies.

The silver lining? Lenders have the ability to actively analyze the spending habits and repayment schedules of users and profile them with unprecedented accuracy. With such abundant data sets, significant value in the financial sector can now be driven.

Added capabilities in their arsenal include:

Generating new revenue streams via data-driven offers and recommendations.
Extending better services and security features to customers, such as the detecting card frauds.
Managing the risk of lending to customers by determining the probability of repayments.
Leveraging Machine Learning techniques to connect relevant card members with the right merchants.
Offering market insights to customers while boosting engagement and trust.

Introduction of Innovative Business Models

The inception of multiple digital lending business models to meet varying customer needs and regulatory requirements has only made the case stronger. With niche operations, companies are now able to reach customers who were not able to access financial services in the past. Innovation in space has fended off challenges related to geography, higher transaction costs, and transparency.

Primary digital lending models today include:

Online and Mobile Lending Platforms: Offer end-to-end digital lending products via purely mobile or web-based platforms. The entire workflow of lending ranging from customer acquisition, loan distribution, and customer engagement is digital.

E-commerce and Social Platforms: Lending is not the core value proposition of such platforms. They instead leverage it as an engagement strategy to boost customer retention and sales.

Marketplace Platforms: A typical marketplace where specific algorithms match borrowers and lenders. An initiation or subscription fee is usually charged by lenders.

P2P Platforms: Such platforms use profiles and data to match borrowers with institutional or individual lenders. They often include support for repayment and collection processes.

Supply Chain Lenders: Short-term and digital working capital loans for SMEs for various needs such as purchasing inventory from distributors or pay-as-you-go financing.

Tech-powered Lenders: Traditional lenders with digitized lending processes that include digital acquisition channels and repayment options.

Enablement of Regulatory Environments

With the economic benefits of digital lending now evident, governments around the world have been embracing the shift. In fact, they have been coming up with regulatory frameworks that protect the interest of all the involved stakeholders. Prominent motivators in the sector by global governments include:

Issuance of Bit Licenses by the US Government for businesses that deal in cryptocurrencies.
Drafted rules for digital lending, such as the ‘Guiding Opinions on
Promoting the Healthy Development of Internet Finance (GOPHD)’ by central regulators in China.
Implementation of India Stack, an open architecture platform for authentication and data access in India.
European Union’s PSD2 (Second Payment Service Directive) regulation enables customers to share sensitive financial data through secured third-party APIs.

With a legal and officially recognized framework of operations, market inhibitors have been efficiently combated. For instance, due to the legal, regulatory vacuum in China, ‘shadow banking’ participants prevailed in the market. This often led to funding mismanagement and liquidity issues for key stakeholders.

Better Speed of Operations and Lower Costs

Digital lending is backed by technologies that eliminate operational bottlenecks and significantly speed up the process of loan approvals and dispersals. An ideal tool can automate the underwriting and approval processes. As a result, lenders are now able to:

Execute real-time data assessment for application approvals or rejection.
Undertake quicker loan decisions and maximize customer engagement.
Constantly monitoring the creditworthiness of borrowers.

At the same time, digital lending business models are much more cost-effective than traditional banking models. Lenders do not have to maintain brick-and-mortar structures or pay for expensive legacy IT systems. Hence, with a significantly lower cost structure, customers receive more affordable loans and access to new financial tools.

How to build a great customer experience in digital lending

The first step to building a great customer experience in digital lending begins with the onboarding process. The very first contact with your website, company and services need to leave a lasting impression. You need to prove why your lending terms are good for users, how they can get money, and which services might be in their scope of interest. The whole interaction should make the potential customers familiar with your services. It inadvertently increases the chance of them wanting more and coming back often to you. Below are 5 ways you can enhance the customer experience to lower the churn rate.

4 Ways to Enhance Customer Experience in Digital Lending

#1. Allow customers to self service

Lenders can provide a good customer experience by eliminating excessive or unreasonable document requests or the submission of multiple applications for multiple products. They can include provisions for easy-to-use and quick processes such as eKYC, e-sign and digital locker with intuitive third-party integrations. Also, easy access to credit scores from the relevant credit bureaus and the subsequent verification of documents in real-time enhance the experience.

A borrower will need more than just necessary product information to make an educated choice. A website or app that can provide support related answers to all their queries across the platform is what every customer requires. Allowing such self-service capabilities improves consumer satisfaction levels, customer retention, and increases conversion rates. User-friendly design, cohesive domain, and consistent web design show customers that they can trust you.

#2. Maintain consistency across all touchpoints

Modern borrowers expect an omnichannel experience from their lenders.

People using digital lending services often switch between devices before completing the activity. Today lenders need to understand the importance of cross channel journeys and the need to extend innovative cross-channel integrations. Also, frictionless digital experiences with near-real-time accountability and continuity across digital and in-person experiences go a long way.

Successful digital lending customer experiences are the ones that deliver a truly seamless multichannel experience.

#3. Adopt financial technology

The time is now for lenders to catch up with the latest technologies to find great opportunities to improve their customer experience. Enhanced security of platforms using biometrics such as voice identification and eye scanners is a great example of how digital is improving the lending business in appeasing customers. Not only this, lenders now have provisions in place for detecting frauds and integration with payment gateways for quicker decision making and disbursal.

Old obsolete banking systems are one of the major attrition factors for lenders as customers now have multiple options to choose from. Good-architectured mobile apps, statistically, have lower churn rates after customer onboarding. This is because the majority of users download an app following the reviews in the Play Store or App Store or recommendations of friends or relatives.

However, when developing an app, consider making it easy to navigate. Solutions with everything at hand are highly appreciated by customers.

#4. Curate personalized customer experience

Personalization and segmentation of messaging and services using marketing automation tools such as CRM systems help a lender stay relevant in this highly competitive market. Successful lenders offer relationship and loyalty pricing tiers and exclusive benefits in a bid to boost retention. They also extend real-time visibility into the status of applications and deliver effective customer-centric communication.

Lending institutions need to leverage customer data to capture untapped opportunities for personalization. According to HubSpot, 59% of customers value the personalized banking experience approach over response speed when it comes to customer service.

Transforming the loan origination journey

#1. Customer Acquisition and Data Capture

Banks use a combination of online channels like emails, social media, SMS blasts, AI chatbots, etc. to attract customers and gather customer data. Banks then use this data to curate personalized digital lending offerings to the customer in an attempt to acquire them to offer their services.

Once the customer data is acquired, banks use the eKYC (electronic Know-Your-Customer) system to automate identity verification. The customers no longer need to physically visit a facility to submit documents for verification. The majority of eKYC platforms also give users access to public or private sector records, which can be useful when a bank wants to improve the quality of its customer data.

#2. Analytics & Data Consumption

Digital lending is mostly about having access to more data and using that data to generate more precise, timely, and automated underwriting decisions. Banks can quickly rate customers and make credit decisions automatically by deploying sophisticated algorithms and data.

A lending software called a Loan Origination System (LOS) uses relatively little manual intervention to automatically gather customer information from pertinent sources, score their credit, and make loan credit choices. The data is loaded into sophisticated algorithms or a ready-made solution to forecast customers’ ability and willingness to repay. The result is obvious: decisions are taken quickly, turnaround times are shortened, and customer satisfaction levels are raised.

#3 Disbursement and Repayment

In the case of digital lending, banks use digital means to both remotely disburse loans and collect repayments. Effective channels for loan disbursement and repayment from partners include things like mobile wallets and e-commerce accounts. By removing pointless paperwork, these cashless channels demonstrate that operational efficiency may be increased.

Additionally, they offer a transparent audit trail, which can help lenders stop fraud. Banks can also consider a Loan Management System if they wish to get a comprehensive perspective of each customer’s lending journey. Customizable repayment plans and durations, aid banks in the proactive identification, classification, and management of loans.

#4 Collection and Asset Management

Data and algorithms are used by banks to support their collecting efforts. Software called Loan Collection System can also assist banks in streamlining disbursement and repayment.

Digital loans, like other loans, include delinquent borrowers being blacklisted and losing access to future credit, which can be a great motivation for them to repay. To help customers comprehend the long-term financial consequences of a bad credit score and to minimize collection efforts, banks are advised to provide them with the required information.

#5 Customer Engagement

By utilizing digital channels and client data, one may create an intuitive, practical, and customized customer experience. This is a two-way communication that involves both inbound (borrower to lender) and outbound(lender-to-customer) channels.

Banks analyze a customer’s spending pattern and send them personalized messages, reminders, and product offers. Customers also can take control of their loan account and manage repayment schedule, raise complaints, ask queries via simple SMS services, contact center help, self-service portals, chatbots etc. This clear open two-way communication enhances a bank’s effort to improve customer experience at every touchpoint of the customer’s digital lending journey.

Additional tips to design a human centric borrowing platform for customers

Appeal to the rational mind

When it comes to money, the rational mind takes over the emotional mind for humans. And if someone had a bad lending experience previously, they are less likely to entrust a new lending platform. Thus, it is important to be as transparent as possible in all the digital lending steps from onboarding to payback by customer. Despite all that, some customers just won’t use your platform more than their utmost requirements and you have to accept that fact.

Give back control to customer

People like to be in control of their finances. A lending platform that allows customizing loan offers based on loan tenure, loan amount, repayment dates, repayment modes, etc. will always be preferred by customers. Designing the app for simple navigation and actions allows customers to have a great experience during the whole lending process.

Keep it simple

Customers already feel overwhelmed by their monetary needs, they don’t need a poorly designed app to add to their misery. The whole process of onboarding, loan assessment and EMI calculation, document uploading and verification, and loan disbursement should be as simple as it can be. Every step should be clearly instructed on what’s been asked from the customer and how to proceed further.

Build intelligent chatbot AI

Another factor that can surely enhance customer experience during the whole lending process is the presence of an assistant. An intelligent chatbot AI can actively help the user to not only guide to their required sections in the app, but also provide necessary information on the go to help ease the whole process.

Consumer credit market trends in the USA

The immediate effect of the COVID-19 pandemic saw a dramatic slowdown of unsecured credit products such as personal loans and credit cards when compared to previous quarters. However, after the reopening of America and the expected addition of jobs and wages helped turn around the declining trend and enable consumers to manage their debts going forward. The US consumer borrowing witnessed a month upon month surge in March-April 2022. This growth was aided by rising prices and continued purchasing power of American consumers.
As the image below shows, the total credit increased $38.1 billion from the prior month after a downwardly revised $47.3 billion gain in March.

Source: Bloomberg

Digital Lending Platforms: many players, many intents

Let’s take a quick look at the existing digital lending ecosystem and look at what global market players are offering in this space:

U.S Bank: Recently launched a digital lending platform that automates the process from application to funding. Applications can be submitted and reviewed on any device and borrowers can even review loan terms remotely and electronically sign documents. And with an integrated ecosystem, customers can initiate application processes on one channel and pick them up on another.

The Halo App: This is a peer-to-peer digital lending platform that leverages an intuitive mobile application to connect borrowers and lenders. It has been specially created to cater to the small-dollar loan requirements of users. It is borrower-centric in the sense that they can slice their payments into smaller pieces. Lenders are available round the clock and borrowers can receive instant cash.

Kabbage: Dedicated platform for entrepreneurs and small businesses that provides them access to up to US$250,000 in loans. It takes users just 10 minutes to verify their eligibility. A highlight of the platform is the elimination of origination fees and prepayment penalties. And with an integrated interlinking of business-related information, users can drive automated financial reviews.

Faircent: a P2P lending platform that ‘connects individuals in need for credit with individuals and institutes willing to lend their access funds’

TurnKey Lender: Intelligent and all-in-one lending automation platform that leverages AI and big data to streamline the elements of a lending process. This ranges from origination to underwriting and servicing to the collection.
Better: Better provides mortgage lending, real estate, title insurance and homeowner’s insurance while removing lender fees and commissions. Better’s lenient lending policies and large agent network resulted in acquiring more than $400M in funding and providing $7.9B in home loans to date.
PayPay: PayPay is a fintech giant in Japan who is revolutionizing cashless payment. It has more than 47 million customers and offers a range of financial services, including banking, securities, loans, investments, and insurance, to services available across various scenes, such as tax & bill payments, online shopping, restaurants, hotels, and more.
Open Lending: Open Lending serves automotive loan borrowers using big data and high finance to provide risk modeling and decision-making software. The company’s Lenders Protection solutions help lenders utilize proprietary data and advanced decision analytics to increase near and non-prime auto loan volumes, leading to higher yields with less significant risk.
SALT Lending: The unique feature of SALT is that it lets borrowers leverage their cryptocurrency for loans. Borrowers can agree to terms ranging from one to 36 months on loans available for Bitcoin, Ether, Litecoin and Dogecoin. It uses blockchain evidence-based, chain-of-custody smart contracts to ensure the crypto is safely transferred. After its huge success in the US, SALT is now expanding its business to countries like New Zealand, Brazil, Switzerland and the U.K.
OnDeck: OnDeck is a B2B digital lender which provides personalized loans and lines of credit to small and midsize businesses. Businesses can identify the type of business they operate (restaurant, retail, tech company, etc.) and even define the purpose of the loan (expanding business, hiring employees, etc.). OnDeck accordingly personalizes the payment structure that best fits the situation.

The Verdict

As we venture into a bold new era of digital lending, customer experience is set to play the lead role in the story of financial empowerment. Lenders that can smartly manage ever-changing customer expectations, emerging technological capabilities and shifting market conditions will always be a step ahead of their competitors. As sources of consumer data grow every year, lending institutions will be able to increasingly focus on consumer needs.

1 2

Resources