In a New Era of Tech-Driven Financial Services, What Has Given FinTech Lenders a Leg Up?

John Wirth
Blog Post01/08/2018

Among the thousands of lenders in the personal loan space, FinTechs are gaining ground. In fact, as of 2016, FinTech lenders are leading the market, accounting for 30% of all new personal loan balances, up from less than 1% six years ago.

Clearly, FinTechs are doing some things well, as they continue to aggressively increase market share over traditional finance companies, who were down 12% over the same period. Although traditional lenders might be doing some of the same things, an industry culture of innovation, agility and consumer engagement has allowed FinTechs to capitalize. Initial challenges have proven to be some of their biggest advantages. So what has given FinTechs a leg up?

FinTechs are financed to disrupt.

With innovation woven into their corporate fabric, FinTechs are encouraged, by both their management teams and their investors, to continuously test the waters – learning and iterating as they go. FinTech lenders often develop a product and get it to market quickly in order to prove (or disprove) the concept. They then invest heavily in the products that really resonate with consumers. While this continuous learning model might result in some course corrections, FinTechs don’t view those as failures. They view them as investments, all of which are necessary to ultimately identify which product offerings, features, and forms of engagement resonate best with their target consumer.  This openness to “failure” is supported by their equity investors, whose funding is effectively paying startup teams to discover, test, and scale new innovations.

Learn How FinTech Leaders Foster an Innovative Culture

They are lean and nimble.

FinTechs are notoriously lean organizations that thrive on rapid decision making and continuous learning. Their management teams often include leaders with many years of experience working for traditional lenders – giving them deep market knowledge. However, FinTechs are unencumbered by legacy technology systems, more conservative corporate cultures and the layers of approvals that can be present in traditional lending organizations. FinTech lenders’ ability to start from scratch and make quick decisions enables rapid iteration, refinement and aggressive adoption of the latest solutions.

FinTechs create value with unique consumer experiences.

Whether it’s pricing out shoes or credit products, consumers want the opportunity to shop around. Innovations like pre-qualification have enabled consumers to better understand the loan options available to them without impacting their credit scores-a game-changer for both lenders and borrowers. Add the customized, consumer-driven digital engagement, 24/7 availability and the multi-channel access that FinTech lenders offer, borrowers can now identify which loan products are the best fit and offer the best terms for their own unique needs-whenever and however they choose to do so.

FinTechs differentiate through a better customer experience

Beyond that, one of the things FinTechs do best is to identify different niches in the market-whether it’s graduates of exclusive universities or small business owners looking for alternatives to high-interest loans-and then develop unique value propositions geared to those specific audiences. Everything from distinct product positioning down to messaging and marketing strategy hinges on what resonates most within each niche. FinTechs thrive on the notion of not trying to be one thing to all people, but rather to be the right thing to the right people at the right time.

FinTechs use data as a differentiator.

Lenders use all types of data-driven methodologies for determining creditworthiness. From single score underwriting to very advanced continuous learning models, both traditional and FinTech lenders rely heavily on data to evaluate consumers and determine appropriate loan terms and associated risk.

But FinTech lenders are not just data-focused, they’re analytics-focused. They rely heavily on advanced analytics to uncover actionable results. Through a process called alternative adjudication, FinTechs couple traditional data with alternative forms of data to more effectively evaluate potential borrowers.

Beyond the analysis, it’s what FinTechs do with that intelligence that has been a key contributor to their success. By looking at non-traditional types of data, FinTechs gain a richer understanding of consumers and create a more granular, highly segmented customer base. Using a more refined view of risk, lenders can identify narrow groups of consumers as well as those who may be overlooked by traditional scoring methods. This enables FinTechs to provide extremely competitive products and loan terms-a key driver of their substantial increase in market share over the past several years-all without taking on additional risk.

Over the course of our long history working with FinTechs—startups as well as established brands—TransUnion has gained a wealth of knowledge about the needs of FinTech lenders. We are uniquely positioned with the right data and powerful analytics that link, analyze and interpret, enabling FinTechs to continue to do what they do best – iterate and innovate.

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