IBS Journal July 2017
29
ALTERNATIVE LENDING | KEY TENETS
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• Technology - Data, AI & Analytics: True application of digital to drive fin-tech innovation
Just as UBER is now mainstream and not a substitute for transportation, the alternative lending models have come of age too, and are here to stay. The key question then is: Should banks compete or collaborate, or would there be another alternative approach to co-exist with these lenders? Let’s explore a few strategies that are evolving globally.
1. Collaborate
When ING, Santander and Scotiabank have adopted the use of the data infrastructure offered by Kabbage, it’s a statement in itself on collaborative models. This approach may not just be processing credit data and building risk models, but also potentially in customer acquisition. Partnering with P2P platforms also helps banks to identify new approaches to reaching out to customer segments not previously targeted. This also allows for banks to broaden their portfolio offering. A bank-vendor collaborative relationship can also result in leveraging and securitizing loans and custodial services.
2. Co-exist
The single biggest limiting factor for alternative lending firms is their access to capital, and an innovative white labelled model could allow for P2P platforms to handle loan applications, execute underwriting process and drive services on behalf of banks, while it provides P2P players with access to capital. Interestingly, banks also find the approach of buying “blocks of P2P loans” to develop their portfolio interesting, especially in areas that are not focused by the bank - both assets and geographies, due to cost structure limitations, and also to diversify the balance sheet. This model has also assumed significance in markets such as India, where players find the basis of lending part of the loan on the balance sheet of a partner-bank to be useful.
3. Compete
Banks are also now looking to develop their digital lending platforms or build a P2P lending marketplace, which serves both to address a new segment of customers and a new channel offering. An interesting example case in point here could be the Rabo & Co platform promoted by Rabobank. This hosts players such as Cloud Lending solutions, and allows the bank to address its customer needs through a ‘hybrid lending’ model. This model allows for crowdfunding as an alternative sourcing to its portfolio
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