How can challengers start lending? - part 3

Hi everyone,

It’s me Dmitriy Wolkenstein, CEO at TIMVERO and a digital lending evangelist, talking about the launch of a lending business for challengers. No matter if you’re a digital fintech brand or a pivoting traditional bank, I believe, this series of articles will inspire you with a few ideas and provide some food for thought.

So, let’s recall the issues we have already covered in Part 1 and Part 2:  

  1. How to choose the most profitable business model?
  2. Which lending forms to prefer?
  3. How find the target audience, and the optimal lending terms and methods?
  4. How to effectively manage active and overdue loans and build solid debt collection practices?

In the third part of the series, we’ll focus on two more:

  1. What is required to create and improve credit products and underwriting models in a well-managed and speedy manner?
  2. How to determine when the process is complete and generating revenue?
#5 What it takes to improve loan products and underwriting models in a fast and controllable way

Banks need multiple tools and techniques to streamline the operations in credit products development or underwriting model improvement.

To overcome the challenges, challengers usually take these steps.

  • Collecting and analyzing data from multiple sources, including traditional and alternative data sources (for example, social media, transactional data, any available public records)
  • Implementing AI-first operating model that utilizes deep data-driven analytics on top of operations in a single interconnected workflow. It significantly minimizes the friction between analytics and operational teams and provides ongoing improvements or banking efficiency and the discovery of new opportunities.
  • Automating and using AI for decision-making in underwriting and loan approval processes. It helps in reducing manual operations, cut down time and back up accuracy.
  • Involving multiple business departments in the development of new credit products and underwriting models to make sure their needs are met and to make them full-fledged stakeholders. It promotes instant assessment of financial implications and helps launch tests to validate the approach in maintaining strict controls.
  • Using advanced analytics tools to generate insights on interconnected risk, product, and marketing. It allows identifying opportunities for new credit products and increases the effectiveness of underwriting models.
  • Embracing customization to build and run nicely tailored credit services that embrace the whole operational flow. In such a case, the bank’s unique needs are met in full, so the new loan products and underwriting models are highly effective.

By taking these steps, banks can develop new credit products or improve underwriting models in a well-controlled and rapid way indeed. It helps them to increase profitability, minimize risk, and skyrocket customer satisfaction. By leveraging multiple tools and techniques, banks can stay ahead of the competition and provide their customers with innovative and effective credit products.

#6 How to wrap it all up and start generating revenue with your freshly-built lending business

The number one goal of any financial institution is to generate profits while meeting secondary goals: building up financial inclusivity, delivering capital to improve lives, and providing updated custom solutions for the market.

Here are a few areas to pay attention to before you start lending:

1. Key metrics and financial modeling

Financial organizations need to check if their initial offerings do not result in significant capital loss. This may be challenging when no one is able to generate immediate profits. Accomplish this with basic financial modeling exercises that consider various factors, such as product offerings, customer size groups, average loan amounts or revolving balances, default rates, operational costs, and bad loan buffers.

Key metrics, such as an absolute minimum number of customers, target cut-off, and default rate, should be set up to monitor performance and make informed decisions.

2. Effective software as a backbone

Yes, I know, Excel is still the king of any data analytics, but there are faster and far more efficient tools integrated with your loan origination and loan servicing software, for example, timveroOS’s Cashflow engine . It helps digital banks create measurable tests of potential loan products in various customer segments and predefined starting points.

The Cashflow engine offers a streamlined approach to financial modeling and enables institutions to quickly adapt to market shifts and optimize their offerings to always be one step ahead their competitors.

3. KPI monitoring and progress tracking

There are a few powerful Business intelligence (BI) solutions out there to monitor if the business goals are met and estimate the progress.

The good news is that timveroOS includes the BI functionality with dashboards and other data visualization tools to help banks make informed decisions in real-time. Precise progress tracking is key for identifying areas for improvement, re-assessing and refining strategies, and ensuring that the bank or other financial institution is on track to meeting key objectives.

4. Actionable data analysis and ML-driven experiments

Evolvement ideas is crucial in digital lending, so it is worth planning out in advance. Banks need efficient ways to evaluate possible outcomes, identify new patterns in risk, products, and marketing, and implement market changes.

Usually, it involves data structuring and collection, which is usually difficult to set up from scratch and requires solid investment. However, once the data is ready to use, the modeling teams can start ML-powered experiments that mind compliance and regulatory requirements. Such experimentation allows banks to reveal industry patterns and trends, and make decisions faster and at lower risk. 

Customized SageMaker helps to gain seamless and interconnected insights.
5. Streamlined implementation and monitoring

After the model outcomes are generated, it is important for the financial department and stakeholders to store and evaluate them to determine the impact on cash flow and make necessary adjustments. In most banks, this process is highly disorganized and involves numerous spreadsheets, meetings, and email exchanges. However, timveroOS’s Cashflow module streamlines this process by linking the ML engine with financial projections, providing stakeholders with real-time access to various scenarios and portfolio performance. This real-time visibility enables quicker, more informed decision-making and allows for smoother implementation of changes.

Interconnected Cashflow to compare Planned, Actual, and Gaming (based on the inputs from ML tools).
6. Flexibility and adjustments

Once the ML model is ready, the next steps are implementation and monitoring. However, if the origination or servicing systems are not equipped for fast adjustments, banks may need to request customizations from solution developers. TimveroOS offers a solution to this issue by providing critical settings in a no- or low-code environment. This enables customization through proprietary SDKs, eliminating the need for external contractors. The flexibility provided by timveroOS ensures that banks can swiftly and cost-effectively adapt their systems without relying on external resources.

7. Growing your business

Financial institutions can achieve consistent profits and develop new profitable products and experiences by adopting an effective approach. This approach includes financial modeling, efficient tools like timveroOS’s Cashflow engine, precise progress tracking, and KPI monitoring through integrated BI and dashboards, and leveraging data analysis with ML-driven experimentation. The importance of streamlined implementation, monitoring, and flexible customization by a no- or low-code environment is also highlighted.

By following these strategies, financial institutions can ensure data-driven, ML-powered evolution, leading to better decision-making, improved performance, and ultimately, achieving their profit objectives. Additionally, repeating the entire path from the first step will ensure continued evolution and increasing profits.

Contact us to learn more about advanced analytics.