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The Rise & Rise of Digital Lending


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Credit Summit 2015 - Nostrum Group presentation by Richard Sunman, Head of Commercial, 26-3-15

An overview of the impact on the lending industry of the advent of digital finance.

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The Rise & Rise of Digital Lending

  2. 2. @nostrumgroup AGENDA • Digital lending • The demand for automation • Consumer attitudes to digital lending • Considerations for lenders • Attracting and retaining customers
  3. 3. @nostrumgroup ABOUT NOSTRUM • Provider of digital loan management software • Cover full customer lifecycle • Every 10 seconds someone applies for a loan using Nostrum’s systems • 95% of loans advanced are paperless • Over 25,000 applications processed per month • 95% of successful applicants get funds in their bank accounts the same day • We’re making lending cheaper, faster, and safer
  4. 4. @nostrumgroup AUTOMATION OF LENDING • Digital disruption is a reality in most markets and lending is no different • “There is already widespread recognition of the need for more modern, flexible technologies for data management which can help banks develop innovative products and alternative business models more quickly and provide more efficient controls and risk management.” KPMG, January 2015 1. KPMG The Changing World of Money, January 2015
  5. 5. @nostrumgroup REALITY BITES FOR MAJOR UK BANKS • The big five banks (Barclays, HSBC, Lloyds, RBS and Santander) could lose over 10% of their lending market share from 2010 to 2020, if current growth rates of alternative finance continue2 • A third of bank executives believe upgrading and simplifying core technology platforms is the single most important IT investment to improve customer experience1 • McKinsey has estimated that approximately half of the core 700 end-to-end processes in banks can be automated • Digital banks start with an automated model 1. KPMG Banking Industry Outlook Survey, October 2014 2. KPMG The Changing World of Money, January 2015
  6. 6. @nostrumgroup CONSUMER MEDIA USE HABITS MUST BE ACCOUNTED FOR • Mobile and social are key drivers • 83% of adults now go online at any time, using any type of device, in any location. • Tablet adoption trebled to 17% between 2012 and 2013 • 33% of mobile users now say they buy things via their phone (vs. 23% in 2012) • 34% use their phone to check their bank balance (vs. 25% in 2012) • 56% of people who buy things online say they often read user reviews Sources: Nostrum Consumer Attitudes to Digital Finance research 2013 & 2014 Ofcom Adults’ Media Use & Attitudes Report – April 2014
  7. 7. @nostrumgroup NOSTRUM’S RESEARCH: CONSUMER ATTITUDES TO DIGITAL LENDING • ‘The Emergence of the Digital Borrower’ • 2002 consumers surveyed • 991 men, 1011 women • Balanced UK representation
  8. 8. @nostrumgroup 5 TYPES OF ONLINE CONSUMER Digital natives Desirable regularsFuture natives Capable massesTraditionalists
  9. 9. @nostrumgroup • Loves her iPhone and iPad • Manages her life online and via apps • Hasn’t set foot in a bank for several years except when her Gran gave her a cheque for her birthday, which took her several weeks to get round to paying in • Doesn’t need to borrow money very often but is confident handling her finances online • Lately she’s been experimenting with various contactless payments applications Helen, 23 years old DIGITAL NATIVE
  10. 10. @nostrumgroup Tom, 42 years old • Has been with his bank for over 20 years • Owns a smartphone but prefers to surf the web from his computer • Manages his bill payments online but if he has a query he likes to ring the call centre • Uses comparison sites when he is renewing his home and car insurance, but he only takes out policies with companies he has heard of • Has a facebook account and likes to read what his friends are doing, but rarely posts anything TRADITIONALIST
  11. 11. @nostrumgroup Dave, 25 years old • Organises his life via his smartphone • Keeps in touch with his friends via Facebook, WhatsApp and Instagram • Orders his groceries online each week and does his clothes shopping on sites like ASOS • Manages his banking online but when it comes to borrowing money he likes to speak to someone at the finance provider • Feels his limited knowledge means that’s the sensible thing to do, although he’s gaining confidence as he gets more experienced FUTURE NATIVE
  12. 12. @nostrumgroup Gina, 40 years old • Spends a lot of time online and loves a deal • Regularly visits discount websites and only buys clothes from her favourite retailer when they have an offer on, which she knows they will do every few months • Uses comparison websites and will growth the cheapest price available, irrespective of whether or not she’s heard of the brand • She’s influenced by online reviews and ratings CAPABLE MASSES
  13. 13. @nostrumgroup James, 45 years old • Confident managing all aspects of this life online, particularly his finances • Has bought numerous items on credit and has taken out several loans in recent years • Very familiar with the borrowing process and is happy to take out and manage loans without talking to anyone or visiting a branch • As a regular borrower, he finds it useful to use an online app where available DESIRABLE REGULARS
  14. 14. @nostrumgroup DEMAND FOR AUTOMATION • Consumers’ demands of their bank are changing at an increasing rate • Flexibility, transparency, and fast responses across a range of communication channels are what consumers are looking for • Almost all research into loans is done online, with 84% using a computer1 • 60% of 18-24 year olds who apply for a loan do so via a digital channel vs 18% of over 55s2 • Children aged 12-15 only conduct 3% of their communications on the telephone - 94% of their communication is text based1 1. Ofcom 2. Mintel Loans UK report January 2015
  15. 15. @nostrumgroup WHAT DO LENDERS NEED TO CONSIDER? Automation • Providing interactive tools for the full loan cycle including loan repayments / scenarios Innovation • eg giving the customer a credit line, available online or via a digital wallet that could include debit card, credit card and loans Data • Ease of obtaining data vs regulatory requirements Skills gap • Digital and data-related skills are typically the ones in demand • This is increasingly a social issue as much as a business one
  16. 16. @nostrumgroup KEY SUCCESS FACTORS FOR DIGITAL LENDING Customer-led • Needs to be considered primarily from the perspective of the customer, not the lender • This is not just about digital products and services, it relates to the entire customer experience Technology driven • A digital lender needs to be able to offer an online interface and interaction that can replace the interaction of a conversation with a person • The positive legacy of payday– technology and immediacy – is increasingly being demanded and harnessed in other forms of lending
  17. 17. @nostrumgroup IMPORTANCE OF CUSTOMER EXPERIENCE • 86% internet users say they give only the minimum amount of personal information required online • 42% say that they are happy to provide personal information online to companies as long as they get what they want in return • Providing a seamless online process is key – online lenders should be looking to create an experience that requires minimal customer data • Consumers still prefer to resolve issues via offline channels • The challenge for online lenders is to minimise these instances Sources: Nostrum Consumer Attitudes to Digital Finance research 2013 & 2014 Ofcom Adults’ Media Use & Attitudes Report – April 2014
  18. 18. @nostrumgroup SOCIAL DATA • Lenders will increasingly use social data to assist their underwriting decisions • 60% of consumers we surveyed said they would prefer lenders not to do this • This month the FCA finalised its guidance on social media, following its first period of consultation since 2010 • We expect social data in underwriting and affordability assessment to become a focus of the regulator Sources: Nostrum Consumer Attitudes to Digital Finance research 2013 & 2014 Ofcom Adults’ Media Use & Attitudes Report – April 2014
  21. 21. @nostrumgroup THE FUTURE • The next 12 months will be a defining period for online lenders • Adoption of technology over the entire consumer lifecycle is inevitable • The digital borrower is set to be the dominant borrower in 2015 and beyond • Lenders who stay in tune with consumer attitudes and maintain visibility will be well-positioned to be their lender of choice time and again Sources: Nostrum Consumer Attitudes to Digital Finance research 2013 & 2014 Ofcom Adults’ Media Use & Attitudes Report – April 2014
  22. 22. LET’S MAKE LENDING, CHEAPER, FASTER AND SAFER Putting the customer in control of their finances, any place, any time and on any device. @nostrumgroup