Traditional lending models are being disrupted by a network of niche operators working in partnership to develop better outcomes for borrowers. Motivations for new lending propositions include expanding product portfolios and moving into new markets, serving the underbanked, digital transformation, and changing customer demands.
These motivations have led to diverse products and lending models as lenders seek to keep pace with the competition.
No lender is an island, to coin a phrase. We often hear about the unbundling and re-bundling of banking services from an end user perspective. But what about those digital innovators working behind the scenes to make the lending body work – the vital organs, if you like?
We explore some of the best modern lending propositions that have been developed to better serve customers in 2022 and beyond.
From the ground up
Fintechs are re-bundling services to compete with legacy banks on price, service and efficiency. Some are partnering to re-bundle but some are doing it alone. We have seen a number of fintech companies building on their initial product offerings to provide full banking services and acquire their banking licence.
In 2015, UK Fintech company Revolut started out as a money transfer and exchange app. The app now offers dozens of products across personal and business accounts, including personal loans and credit cards.
Revolut has recently acquired a full banking license. Currently holding a Lithuanian IBAN, the company is expected to replace this with an Irish one later this year. The launch of a personal loan offering is just the beginning, as the fintech takes the Revolut Bank’s services to Ireland, whilst KBC and Ulster Bank withdraw.
Partnerships to serve the “invisibles”
Re-bundling through partnerships has been an effective route to expand customer bases and provide services to communities who have previously been “invisible” to traditional banks.
Monese is a fintech company that provides accessible, mobile money accounts to customers and aims to rapidly scale the untraditional workforce, (predominantly those in the gig-economy, side-hustles or niche areas in the creative economy). The company recently moved into credit and lending through its acquisition of Trezeo, an FCA authorised financial services provider. Trezeo offers lending services to independent and self-employed workers.
As a result, Monese expanded its offering with the launch of a new Credit Builder for customers in the UK. The Credit Builder will empower customers to build their credit history, so they can access better borrowing deals. Credit Builder is aimed at those who struggle to access credit because they have little or no credit history.
This is the first of Monese’s acquisitions and is a great example of fintech companies that are re-bundling services through acquisitions or partnerships, to provide better products for customers who have previously been restricted or ignored.
Entering new markets
We are also seeing partnerships between banks, fintechs and third parties, as lenders enter into new markets. At the end of last year, Atom bank partnered with buy-to-let mortgage marketplace, Landbay.
Atom Bank originally offered residential mortgages, but with the addition of buy-to-let, has been able to expand its existing portfolio. There are often mutual benefits that come of these partnerships – Landbay were able to extend the reach of their offerings to brokers and landlords.
Jays Shortt is Chief Product Officer at Landbay. He comments on the unique relationship between the buy-to-let marketplace lender and other lenders:
“Landbay’s mortgage-as-a-service proposition has made it possible for institutions to add buy to let mortgages assets to their balance sheet at drastically reduced operational cost. Landbay’s proprietary platform, L.O.U.I.S, automates and minimises the complexity of the business model. The breadth and variety of products we offer is representative of our funding partners’ different risk and return appetites and our commitment to serve the ever changing needs of our customers.”
Building borrower hubs
Another example is a recent partnership between Nationwide and Funding Circle. The two companies have created a new Partnership Solutions page. The page acts as a resource centre for SMEs, with expert guidance, comprehensive insurance and lending offerings. This is the first time an online lender and leading property and casualty insurer have collaborated to progress financial support for SMEs.
TSB Bank has partnered with banking technology provider BankiFi, to launch Revenu – an app that simplifies invoice processes for SMEs. By providing solutions that are wider than financial services and business loans, banks are starting to build their own Super App offerings and provide end-end services for customers.
In November last year, DBT secured Euro 20 million in equity to accelerate growth, enabling the lender to further strengthen market position, expand its offering and continue to develop the data driven platform which in combination with human expertise allows for a tailored and scalable lending experience.
Alexis Kopylov is CEO and founder of DBT. He makes some predictions on modern lending propositions in 2022, “The Nordic SME-lending scene will experience significant disruption the coming year, with platform lenders taking market share and breaking the oligopoly.”
In May 2021, DBT signed a Euro 100 million deal with NatWest to seed Swedish SMEs with growth financing. NatWest acted as senior lender in the structuring, documenting and execution of a securitisation of secured loans to SMEs, granted by DBT. With strong and scalable funding in place, DBT continues to scale up its operations further with the ambition to build the next generation of financing and growth partner for SMEs and entrepreneurs.
There are many different routes that lenders are taking. New partnerships means better lending propositions for a wider borrower audience. We will continue this conversation at FTT Lending 3.0 on 30th March. Register now to hear more about the anatomy of lending – understanding the vital organs that make modern propositions thrive.