As part of Marqeta’s work to engage and participate in shaping the future of lending, we’ve spoken to a range of influencers from across the lending ecosystem. These conversations are being made available in a series of blogs, beginning with David Beer, Head of Partnerships at B2B lender Esme Loans
1. What are the key trends you’re seeing in lending?
Over the last five years or so, there have been huge developments across every aspect of the lending journey. From enhanced customer journeys and experience, through to lending automation. And as such, customers expect a far more advanced and slick process when it comes to securing the funds that they need.
This is evidenced with the growth in alternative lenders, with several players harnessing technology to deliver funding to small businesses much more efficiently. For example, the Esme Loans application process takes less than 10 minutes and once approved, the funds can be in your account within the hour. Long gone are the days where SMEs had to wait weeks, if not months, for the money they needed.
Partnerships and collaborations are likely to play a bigger role as we move forward as they not only allow lenders to focus on their area of specialism, but they also help facilitate relationships that are mutually beneficial to both parties by giving each party greater access to market, new products, revenue streams, improved decision making or enhanced user experiences. This also allows SMEs to have real-time, low-touch lending experiences in their existing business tools and platforms. Taking the complexity out of the process, allowing a simple, fast and hyper- personalised funding experience.
In addition, Open Banking is now becoming the norm, and this will begin to play an even greater role in lending over the months and years ahead. We’re only at the tip of the iceberg of what this can do for lending and there are some exciting times ahead. For SMEs this offers an easy and effective way to provide relevant trading information, enabling lenders to deliver tailored and flexible solutions.
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?
This question reminds me of a quote from John F. Kennedy “When written in Chinese, the word crisis is composed of two characters — one represents danger and the other represents opportunity” –
When major events occur, it’s important to take the time to reflect on your business to see how you can adapt and pivot as necessary in order to survive.
The pandemic has already seen a shift in customer behaviour, preferences and values. This is creating an acceleration of digitalisation and adoption of technology to accommodate this transition. Data, insights, and technological adoption will play a massive part in everyone’s journey. No business can afford to stand still or stop innovating if they want to stay in business.
When it comes to lending, the crisis has already highlighted some gaps in the models of alternative lenders, such as their speed, agility, adaptability — as well as not being able to provide access to capital repayment holidays, capital & interest holidays, or getting access to the government loan schemes.
At Esme, we’ve taken time to ensure we’re supporting our customers during this uncertain time. We’ve also reflected on our business and how we adapt and change in order to enhance even further our technology and proposition. That way, we’re perfectly positioned to support SMEs across the U.K. to get back on their feet and drive their businesses forward.
3. What are the biggest challenges for lenders in the next 12 months?
The crisis has produced several challenges and for some alternative lenders, it will be the performance of their back book and the ability to access to cheaper liquidity that will drive their front book as they trade out of the crisis.
If there is limited flexibility in their product or a lack of speed or agility to adapt and support customers though the challenging times, these lenders may struggle in attracting a loyal customer base.
Going forwards, old lending models may not be fit for purpose as they will not accurately predict risk and performance post-Covid. This is where technology, rich data, and insights will play a key role in shaping solutions and appetite position. Enhancing decisioning models to understand how different segments will perform and trade out probability under several market conditions will be the key to success here.
4. What do lenders need to prioritise to deliver a better customer experience?
Customers want fast, flexible, and affordable loans with the majority now also wanting a low-touch digital experience. Simply put, SMEs want an answer upfront – can you lend to them? And if so, at what rate? This is where digital enhancements, open banking, and a simple process is key.
As previously touched upon, a quick and easy application process is where this should start.
This means clear guidelines and communication throughout, detailing, in plain English, what they need to do and when, where they are in the process, and what the lender’s decision is and why that decision was made. Making the process as simple as possible for the user, with limited manual inputs of information will ensure that a user’s experience is quick and easy, meaning they are less likely to drop off halfway through and apply for lending elsewhere.
At Esme, we remain laser focussed on the platform functionality and customer proposition to offer a quick and easy application process for all our customers. Whilst 2020 has presented challenges to all businesses, we have used the time to invest in our customer experience, our smarter decision-making capability, and our enhanced automation capability, allowing us to support our customers now and into the future.
5. What does your version of Lending 3.0 look like?
We are building an environment where access to lending is fully digital, automated, fast, flexible and affordable for SMEs. We aim to take the complexity out of securing finance by creating a low-touch digital journey to support SMEs as and when they need access to funding.
Huge thanks to David for taking the time to answer these questions. Learn more about Lending 3.0 in this white paper. In the next blog, we talk to Alex Miles, Head of Growth at Capital on Tap.
You can also learn more about Esme Loans thoughts and ideas on how Lending 3.0 is transforming the lending landscape in their blog post: Lending 3.0: The Future of Digital Lending
*The views and opinions expressed in this blog are those of the respondent and do not necessarily reflect the views or opinions of Marqeta.