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Lending-as-a-Service – Opening New Avenues for Banks

According to Market Force, in 2018 nearly 25% of account holders visited a branch to open a new deposit account while only 19% visited to apply for a loan. Tech-savvy customers are adopting digital banking methods and like to bank from the comfort of their homes rather than visiting a bank’s branch. 

The changing customer expectations and market dynamics require banks to shift from a brick-and-mortar model and offer banking-as-a-service (BaaS) solutions and models. BaaS allows third parties and fintech to connect with a bank’s systems via APIs and offer personalized offerings to customers. 

To start with, banks can explore the lending-as-a-service (LaaS) space, given the rising competition from financial technology (fintech) companies that offers the best in class experience through the latest technologies. 

Lending-as-a-Service- How it Works?

LaaS is a sub-category of BaaS. Let us see the way it functions. 

Consider a customer looking for a car on a car aggregator website. The aggregator provides a holistic, integrated experience to the customer by getting quotes from its partner banks and offers a customized loan. This way, a non-banking entity, in this case, the car aggregator, can offer their customers digital banking services without having to deal with banking regulations.

By opting for a LaaS model, banks can gain the speed of a fintech and offer a superior experience to their customers. Also, banks benefit from the fact that they onboard new customers while saving on manpower costs and reducing credit risks. 

What Banks Stand to Gain?

The adoption of lending-as-a-service will provide banks with notable benefits such as:

  • Legacy banks can establish a relationship with fintech companies and become their partners rather than competitors
  • A new stream of revenue as banks can offer third-party fintech services to their existing customers through digital channels and even earn new customers
  • Significant cost savings through seamless integration with banks’ existing infrastructure 
  • Integration with an existing legacy backend core banking infrastructure to enable faster time-to-market and leverage existing IT investment
  • Better customer retention by delivering superior experiences as banking and payments services are tailored to customers’ needs

LaaS – A Win-Win Situation!

Lending-as-a-service is a win-win situation for all the stakeholders – financial institutions, their customers, and partners. To stay ahead in the competitive landscape, banks must provide innovative solutions that can be tailored based on customers’ needs. LaaS allows banks to offer personalized services to their customers by efficiently collaborating with external vendors while leveraging the best-in-class technology. 

By: Mr. Ritesh Varma, Global Head – Business Solutions, Newgen Software

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