Credit-as-a-Service in the era of GAFA.

November 2019

The digital lending market is undergoing a substantial transformation. On top of the challenge posed by Fintechs and their innovative business models to high-street incumbent banks, we are now seeing a strategic move by the tech giants who are dipping their toes in the financial sector.

In a world where customers are increasingly used to one-click transactions and smooth user experiences, audiences expect the same transformation already underway in most customer-facing industries to materialise in the lending sector. Why should subscribing to a loan be harder or more time-consuming than buying a flight ticket or ordering food online?

A survey run by MuleSoft with 8000 respondents all across the globe showed 52% of millennials declare they would consider using a financial service provided by one of the GAFA[1].

The stakes are high. Credit is the biggest contributor to revenue generation in the banking industry, but the digitalization of lending is lagging the evolution of the rest of the industry. A survey run by Capgemini found that clients reported loan applications as the highest friction-generating interaction with their primary bank [2].

But are traditional financial institutions well-equipped to survive an entry of the big tech into their industry?

Arguable.

The truth is there are several challenges that they need to address to bring their lending business to the next level:

1. IT talent is scarce.

The increasing number of companies demanding this type of skills has led the unemployment rate for software engineers to hit a record low. According to the IMF, the world economy will face a shortage of 85 M tech workers in 2030[3]. In this challenging context, traditional banks lack the competitive advantage of pure tech companies as a career choice for software engineers.

2. Delivery timelines are slow

Even in the event that a traditional player was able to find the right fit of IT talent to scale up their digital lending business, the chances are that it would move significantly more slowly than pure tech players. Indeed, they are known for using inefficient and long hiring processes, including dense training into companies’ complex ins and outs, which stretch out the projects’ time-to-market significantly.

3. Data exploitation is obsolete

For a long time, most incumbent banks have regarded the new data regulations in Europe, such as PSD2 and Open Banking, as a threat for their long-term role as trusted holders of their clients’ data. The imminent entry of companies like Amazon or Facebook, who have access to a myriad of customer data, raises the standards to a whole new level. Fintechs have been early adopters of technologies that leverage the PSD2 opportunities at the service of customer experience and process optimisation, while banks have struggled to understand its potential, in particular in its application to the lending chain. 

4. Margins are shrinking dramatically

According to a McKinsey study, 36% of global banks are at risk of disappearing, most of which are located in Western Europe [4]. In a context of sluggish returns, it would be irresponsible for banks to disregard lending as an opportunity for value creation, even more if they have access to partnerships with specialised players who can maximise profitability through economies of scale and mitigated cost of risk.

5. Trust and cybersecurity must be safeguarded

Trust being the main strength of traditional players vis-à-vis big tech players, financial institutions are investing heavily in robust cybersecurity systems. This seems like a logical move, as banks are 300 times more likely to be target of cyberattacks than other industries[5]. Indeed, a study carried out by Deloitte in the US shows that financial institutions invest as much as 10% of their IT budget on cybersecurity measures[6].

To be best positioned to respond to these challenges, market shapers are increasingly moving towards a platform structure, which allows them to expand revenues quickly without having to incur in significant acquisition or development costs. This ecosystem approach (followed by Santander with their InnoVentures initiative or by neobanks such as N26 and Revolut), capitalises on the bank’s core systems as orchestrator, while ensuring each different product segment is owned by a specialised player who can deliver the highest quality standards at the most competitive pricing.

The Future of Lending. Now.

Aware of the numerous challenges facing the banking sector in the coming years, Younited decided to launch a dedicated offer to empower banks as they take on this herculean task.

Younited Business Solutions offers financial institutions the opportunity to leverage its 10-year experience in digital lending to launch a credit product or modernise part of its value chain. Valid both for incumbents looking to overhaul an existing lending product and for new entrants to the lending industry, our Credit-as-a-Service offer radically transforms the credit value chain as we know it, bringing significant headway to partners. Lending being the highest revenue generator and margin contributor for retail banks, Younited Business Solutions positions itself as a strategic ally for partners striving for growth and profitability.

To the 5 hereabove challenges faced by traditional banks, Younited Business Solutions gives 5 exclusive answers.

1. Tech expertise as a flagship

Younited’s tech expertise is at the core of the Credit-as-a-Service value proposition. Our highly experienced IT team is responsible for the construction and maintenance of the single, cloud-based and multi-country tech platform where we develop the bulk of our activity. This highly scalable configuration allows Younited Business Solutions to be extremely proficient in the launch of new countries, products and partnerships. 

2. The agility of a fintech

The Agile approach we follow religiously in our tech developments allows us to sustain the fastest time-to-market in our projects. Our IT teams are highly experienced in delivering Credit-as-a-service projects within short timeframes through continuous iteration, frequent releases and gradual testing.

3. Spearheading the PSD2 revolution

Armed with several years of experience in incorporating the PSD2 data to the credit application process, Younited Business Solutions brings its partners the UX improvements, automatic decisioning tools and risk mitigation strategies that have reshaped our own lending business. The wider understanding of the customers not only allows us to make faster, better decisions but also to propose financial products which answer the specific needs of each of our clients.

4. The trustworthiness of a bank

As the only lending platform in Europe to operate with a full ECB banking license, Younited is fully regulated as a financial institution. Our technologies, infrastructures (including our full cloud platform) and processes are subject to continuous audits and due diligences in all the countries we operate in[7] .

5. Full alignment of interest on pricing

Provided the involvement of Younited Business Solutions goes well beyond the implementation of our technologies entailing data analytics, risk monitoring and marketing expertise, we place a strong commitment into the profitability of our collaborations. Younited’s expertise in credit origination and the economies of scale of a full-blown service provider, help us to not only minimise development expenses, but also to limit running costs such as servicing costs or cost of risk at the service of value creation.

The numerous advantages brought by Younited Business Solutions to the lending industry allow partners to fast forward the development of their credit business to the extent that they judge best. Indeed, the Credit-as-a-Service offer is fully modular, meaning that the partner can select the modules that are of interest to their own specific strategic stakes. Younited Business Solutions adapts the Credit-as-a-Service value proposition to the specific needs of the partner so that, together, we build powerful partnerships that make a lasting impact in the financial industry. 

[1] Fecility, Hannah, (2018). Could banking with Facebook and Google become the future. The Independent.

[2] Capgemini, (2019). Voice of the Customer Survey.

[3] Nicolaci da Costa, Pedro. Tech Talent Scramble. IMF Finance & Development, March 2019, Vol. 56, No. 1.

[4] McKinsey, (2019). Global banking annual review 2019.

[5] ITSP Magazine, (2017)

[6] Deloitte, (2019). Pursuing Cybersecurity Maturity at Financial Institutions.

[7] Example: due diligence led by rating agencies Standard & Poors and Moody’s for our recent public securitization of 156 m€ in June 2019, rated AAA/Aaa