This morning I read a daily client post from a correspondent bank on the topic of competing with non-bank online lenders. The competition from these ‘marketplace lenders’ is growing at a rapid pace and is something banks and credit unions cannot ignore as they scramble to generate loan growth.
While the article noted that the interest rates on loans from these players are often higher than traditional financial institutions, their popularity has been driven by their simple, convenient mobile/online application process with fast approvals. Customers don’t mind paying up a bit for speed and convenience.
So far, so good. The article highlighted the problem and identified the key drivers of the competitors’ success.
But when it came to suggestions on how to meet this competitive challenge, the recommendations all centered around either trying to compete on price or continuing to eke out incremental progress on improving the customer experience.
That’s not terribly useful advice. Competing on price for a customer base that is mainly seeking speed and convenience simply isn’t going to work.
Nor is pursuing small, gradual improvements in customer-facing technologies and back-office processes. Competitors will continue to bound ahead, leaving companies that are slow to change further and further behind. And increasingly irrelevant.
What is needed instead is a laser-like focus on the customer experience, and the complete re-imagination of legacy back-office processes and procedures using current technology. Anything short of a transformation of that magnitude will result in more and more business going to these financial technology disruptors.
