As the business-to-business alternative lending industry continues to carve out its path as a global force, an increasing number of providers are joining the space. This ever-growing list includes P2P lenders, factoring lenders, merchant cash advance providers, direct lenders, and pure-play digital banks — with more to come. They’re all focused in small- and medium-sized businesses (SMBs), many of which now face the challenge of getting into shape to handle those new areas of business.
FICO, in its recently released white paper, “Alternative Lending for Businesses: Three Keys to Achieving Scale,” provides an explanation of not just the titular 3 goals, but actually a series of 3-point plans that can put SMBs on track for success in the expanding world of B2B alternative lending.
If any doubt remains that alternative lending is on the rise globally, the FICO white paper paints a clarifying picture right off the bat with 3 country-specific statistics:
1. Merchant Cash Advances in the U.S.: In 2009, the range was $500 million-$700 million. This year? $3 billion-$5 billion.
2. Peer-to-Peer Lending in China: $30 million in 2009; $7.8 billion presently.
3. The Factoring Market in Australia: In 2002, the market accounted for $16.8 billion in the country. Ten years later, that amount had more than tripled, to the tune of $58.9 billion.
ALTERNATIVE LENDER NEEDS
Touting its Origination Manager solutions as effective for helping alternative lenders grow and adjust to market changes, FICO outlines 3 needs that the architecture solves for:
1. Operating in compliance with increasing regulations
2. Gaining new efficiencies through automation, to scale the business and enhance profitability
3. Delivering a superior customer experience
As the B2B alternative lending industry grows, the white paper explains, 3 new challenges for businesses will arise:
1. Increased regulation. Government financial agencies will seek to protect customers by ensuring the fair application of lending criteria transparent disclosure of information. Audits will require lenders to provide precise details, down to the individual customer level.
2. More intense competition. FICO provides the example of China’s P2P lending market, which is currently comprised of about 2,000 lenders. In the U.S., meanwhile, big names like Wells Fargo, eBay, Amazon and American Express are raising the stakes as they throw their hats into the SMB ring.
3. Higher customer expectations. More providers means more options for business owners. Those that distinguish themselves by focusing on the customer experience — especially on mobile devices, the white paper intones — will be the ones that succeed.
ORIGINATION MANAGER MODULES
The aforementioned FICO Origination Manager — which, the company points out, now offers a “Cloud Edition Decision Service” — branches out from an Application Processing Module (which includes preconfigured workflow processing steps, queues and data capture that reduce the implementation cycle time) into 3 others:
1. The Decision Module, which includes an intuitive interface that enables users to set rules and deploy strategies without the need for IT coding.
2. The Analytic Module, providing access to scoring services for each applicant.
3. The Data Acquisition Module, which enables users to obtain consumer credit data from reporting agencies.
THE 3 KEYS IN PRACTICE
The white paper comes back around to address the titular “big 3,” as it were — the keys for small- and medium-sized businesses to achieve scale in the field of alternative lending — and how FICO can help:
1. Operate compliantly
The company attests that its Origination Manager can help alternative lenders prepare for more rigorous regulatory scrutiny — an additional upshot of which is an increase in security for customer data.
2. Gain efficiencies
In reviewing the espoused benefits of FICO’s cloud-based software for alternative lenders in the realm of speed and flexibility, the white paper shares the statistics that those using the Originations Manager typically experience a 50 to 100 percent increase in application volume capacity and a 25 to 50 percent reduction in manual reviews, as well as a 15 to 25 percent reduction in delinquencies and bad debt.
3. Enhance the customer experience
It all comes back to mobile, attests FICO, as that has largely become the preference for small business customers — just as it has for individual consumers — to interact with their financial institutions. In its summary, the white paper posits Originations Manager as an asset in helping alternative lenders maintain communications and positive customer experiences across all channels.
To download the full white paper and learn more about the FICO Origination Manager solution for alternative lenders, click here.