Issuers of all sizes brace for a credit rebound
What do Tesla and incumbent OEMs have in common with FinTechs, community banks, and existing lending platforms? It may not seem like a reasonable comparison at first, but Tesla saw a market opportunity, applied new technology, and opened up new distribution channels to deliver a suite of personalized products that didn’t focus on the status quo or the consumer. usual car purchase. . In order to be competitive, he focused on a new breed of car buyers. And in the process, incumbents have followed Tesla’s lead.
As Amir Wain, CEO of i2c, told Karen Webster in a recent conversation, there are clear comparisons to the current financial services landscape and the competition between banks and smaller, focused financial institutions (FIs). on the community. “They (small to medium-sized banks) need to realize that the [credit issuing] the landscape has changed, ”he said. “They now have the options and the ability to really offer a competitive product.”
As Wain explains, Tesla has built an entire ecosystem – spanning distribution and supply chains – to support a new customer base. As for the incumbents, Mercedes and Audi have not stood idly by while waiting for Tesla to take market share. They’ve built strong EV offerings and are pivoting so that their (large) installed base can access a new, tech-driven product.
Similar dynamics are evident in financial services. Big brand names have the advantage of serving their markets holistically, capitalizing on the regulatory environment and the needs of their existing customers. And when these banks capitalize on the looming credit rebound, Wain said, “they will start with a little edge” – even if they have to struggle with the infrastructure and mindsets inherited from the past.
But, like electric vehicles, the digital age has produced a distribution model to reach end users and platforms that can enable credit unions (UCs) and other small FIs to compete with their big brothers. – and the experience to which FinTechs aspire. This is a marked change from what was done just a few years ago.
All issuers, especially small regional FIs and credit unions, Wain said, can take advantage of these opportunities if they have the technology in place – and the contextual understanding of consumers – to offer the right credit cards and the right programs at the right time. This is a win-win scenario for consumers (who have access to credit) and for FIs, who once relied on agent banks to deliver credit programs that offered little customization and a largely unfavorable economy.
The question of preparing for the credit rebound is urgent. Even though debit spending has far exceeded credit metrics over the past year, banks and card networks are betting that a more stable and financially confident consumer will start using credit cards more often. credit and / or request new ones.
Delivering new credit products on a large scale will require new platforms and partnerships to meet the technical and operational demands of creating new products for hundreds of thousands of consumers and entities that “reach current customers and potential quickly and affordably, ”said Wain. Additionally, he noted, updates are automatic through Software as a Service (SaaS). Operationally, FIs must struggle with customer service inquiries, integration with credit bureaus, credit reporting, and delinquency management – not to mention logins and lockboxes, as well as APRs and promotional aspects of the campaign.
Credit unions and community banks can compete in today’s lending landscape by focusing on what Wain has called the “last mile” of the customer onboarding experience – in fact, giving the FI a metric. control over the development of a credit portfolio. “Our role is to be a facilitator and a partner, and as to what the product should be, to whom should it be marketed and at its price, we let our partners make those decisions,” he explained. .
With this decision-making ability and power placed in the hands of the FI, the issuer has the power to increase their P&L through personalized and contextual marketing efforts. PYMNTS data shows the potential: In one example, 60% of consumers in credit unions had a credit relationship with the CU of their choice, but 60% of those people also had credit relationships elsewhere. That’s a lot of leaks that, if brought together under one roof, could increase bottom lines and cement relationships with end users.
But it’s not just a question of the map. It’s also about the digital broadcast and the ability to deliver digital procurement in a mobile wallet at the point of sale – all hosted in an app, where at a high level the consumer becomes the point of sale. . In Wain’s words, plastic cards have been a good choice, but digital will always be a staple.
Manage the inconveniences
Of course, there’s one downside that needs to be managed, Wain noted: On occasion, individuals can overspend and struggle to cover their bills. Issuers should endeavor to manage the risk of this overrun, linked to payment defaults and payment defaults. He highlighted i2c’s communication management tool, which allows FIs to run educational programs that can alert borrowers to expenses beyond their usual use.
“The communications manager is fully integrated with the transaction processing system,” Wain explained. “You can create these personalized messages and educational campaigns that can keep the user fully aware of what they are doing, the risks of going over budget and approaching their credit limit.”
The platform model and the adoption of partnerships, he said, allows FIs to put together the different pieces they need – finding subscribers or leveraging i2c’s own subscription engine. “We will be removing the credit history,” Wain said. “We are going to extract the data from the bank. You can define business rules, you can define how credit limits are defined, but then you own the receivables. “