Lending 3.0: Building a Bettter World for Lenders and Borrowers

September 23, 2020

A discussion has been sparked amongst the lending community about what the future looks like.

In order to delve deeper, Marqeta has engaged a range of key players and released a white paper “Lending 3.0: Building a better world for Lenders and Borrowers” which includes a new insightful section of seven perspectives from Cape, Capital On Tap, Esme Loans, Asto UK, Codat, ETRONIKA, TBI Bank, Twisto, LendIt Fintech, and Q2 Cloud Lending. These experts reinforce the Lending 3.0 concept, and in doing so demonstrate that there is no turning back.

Download full white paper here.

We are happy to share our contribution to the whitepaper.

Authors: Kęstutis Gardžiulis, Founder & Chief Innovation Officer; Michailas Traubas, Solutions Architect.


1. What are the key trends you’re seeing in lending?

Prospective borrowers are already used to seamless user experiences thanks to big tech players like Amazon, Netflix, social networks and scores of other well-thought-out apps. These borrowers now expect the same experience when applying for a loan. This means financial institutions — incumbent banks and challengers — must have a high degree of automation, efficient processes, innovative scoring models, fully utilise data, and collaborate with third parties in the market to build effective lending products that fit customers’ needs.

Alongside this, there’s a conflict emerging: fintechs are simplifying services, whilst incumbents assisted by some fintechs, seem to be focussing on complex products and their digitalisation, making services even more complex. However, we are certain that the push to simplification will win the day, as individuals and businesses opt for those instantly accessible products that require minimal information and interaction.

Additionally, lending ecosystems are all about mixing and matching different products and services – loans, insurance, payments and delivery. This plays well with the simplification agenda, since such complementary products are fairly easy to integrate.


2. The 2008 financial crisis was the catalyst for alternative lenders. Do you think the current pandemic will be a similar agent for innovation and change and what might it look like?

Market shocks are always a catalyst for innovation, and the resultant behavioural shifts and new expectations of borrowers are creating a perfect environment for newcomers. During times of uncertainty, a higher number of potential loan customers are out of the equation because they are deemed “too risky.” But by looking at customers in a completely different way, through the use of data and innovative approaches in loan origination, scoring and risk management, a vast array of opportunities opens up for alternative lenders.

The financial crisis of 2008 might have acted as the catalyst for alternative lenders, but the pandemic is certain to test their resilience and verify their abilities to do battle with the incumbents on a level playing field. Indeed, alternative lenders have a great opportunity to compete with established players in disbursing statebacked Covid loan packages. This would prove (or disprove) whether alternative lending can keep up to the promise of agility, short time-to-market, as well as market outreach.


3. What are the biggest challenges for lenders in the next 12 months?

Lenders will have to actively manage their nonperforming loan portfolios, adjust their risk management strategies, and change risk/scoring models to address this unprecedented economic downturn. For traditional lenders, this means another round of reshuffling their loan portfolios and creating new lending strategies, mitigating uncertainties and changing realities of economic relationships on a global level.

For alternative lenders, the key challenge will be to demonstrate their ability to adjust their IT solutions and algorithms that were built to address the financial crisis of 2008, and adapt them to post-Covid demands. Creating a mature yet agile organisational culture, and an ability to either fit into the rapidly evolving ecosystems or actually create new ones will be the greatest challenges in the coming years.


4. What do lenders need to prioritise to deliver a better customer experience?

Why should lending be different to the buying experience at Amazon? Are banks and lenders a different breed of service providers? It’s clear that customers want the same kind of experience with lending that they enjoy with any other user-friendly app. But it’s not enough to just have a fancy design. A seamless customer experience requires design thinking, customer centricity, the right guidance through the process, use of available data, fast and efficient loan origination processes, and an agile lending organisation.

In terms of data, a critical factor is a lender’s ability to collect data for the customer rather than by the customer. To accomplish this task, the ability to integrate with external data sources quickly is of the highest importance.

Finally, a top priority for lenders in Europe and many other regions is exploiting the potential of Open Banking and PSD2. Frustratingly, the full potential of PSD2 remains to be unlocked, mainly because there isn’t a level playing field in many E.U. countries, and because many account providers offer solutions which effectively ruin good customer experiences. We really need to engage the banks and regulators to address these challenges.


5. What does your version of Lending 3.0 look like?

We are helping lenders to build an agile lending institution. We strongly believe that good user experiences for borrowers and the employees of financial institutions are a must. Therefore, we’re relentless advocates of collaboration between different ecosystem players, where each player provides a best-in-breed service that results in innovative crossfunctional lending products, efficient processes and helps borrowers navigate through a user-friendly loan origination journey.

This requires an agile and low-code digital transformation platform to allow the rapid development of lending products and be compliant with a changing regulatory environment. Lenders need to be able to rapidly build, change and adjust loan origination processes, connect to different third parties’ data sources, registers, credit bureaux and internal back-office systems with minimal involvement by IT staff.

Our solution for lenders – DIGITAL Loans.