2020 accelerated digital by two years +

But what does this mean? What does the credit risk environment look like – and what are the key strategies needed to adapt,  survive and thrive in the ‘new credit economy’?

One of the major strategic themes affecting the UK market today is the acceleration of digitalisation. Covid-19 has driven this existing trend forward at a rapid pace, making it a necessity rather than a choice. From customer engagement to artificial intelligence (AI), machine learning (ML) and automated technologies, digital transformation has moved forward by two years.

And while lenders are trying to navigate this upheaval in an uncertain and volatile economy, they are also dealing with seismic shifts in customer behaviour and expectations. Consumers have had little choice but to turn to digital channels and services en masse during the pandemic. For some, it was for the first time. And it’s likely that this trend is here to stay. With more people using digital financial tools there is increased demand for a faster, more customised service.

With opportunities come also threats

Accelerated digitalisation has opened up an array of opportunities for lenders. However, businesses now also find themselves dealing with significantly more complex and rapidly growing threats to their operations. And it is happening at a rapid pace. We believe that there are five key areas that lenders must consider in order to ensure safe and successful navigation through an age of accelerated digitalisation.

1. Cloud technology and automation – the building blocks of digitalisation

Automation is now one of the most essential developments in the business world. It allows decisions to happen on a much larger scale. This means reduced cost, improved productivity and a faster sales cycle. But more importantly it enables businesses to assess, understand and manage risk at speed and scale too, so that they can adapt quickly and lend confidently.

And it is cloud technology that is enabling businesses to move at such an accelerated pace. It offers the ability to respond quickly, as well as seamlessly integrate and orchestrate advanced processes. As such, it is playing a vital role in how agile businesses can be and, therefore, the way businesses are developing today. Cloud technology is at the heart of emerging technology discussions and lenders must embrace it.

2. The increased expectations of personalised and responsive decisions

Consumers have always expected an instantaneous, seamless and personalised experience. Now with more people turning to digital channels and services, the pressure on lenders has increased. Existing tools and approaches are no longer in step with the pace of change.

Organisations must have the right technology in place to be able to pinpoint accurate, actionable insights, so that they can deliver personalised and responsive decisions. And, of course, they must have the ability to consume new and relevant data. Not every business, or consumer, is impacted in the same way and economic trends aren’t nationally or regionally balanced. Being able to analyse granular level data (sector or local area insight for example) alongside other data sources, traditional and non-traditional (for example bank account transaction data, or employment and salary data) will enable lenders to spot trends. It’s the ability to drill down into income shock analysis and household income shock, that the stress points of each individual can be revealed. Only then can a true understanding of risk be reached and remedies can be applied, as well as strategies to help businesses exposure.

The challenge perceived by lenders is that legacy systems prevent them from making even the smallest of changes at pace. This can be overcome easily by harnessing the right data and analytics into a lender’s decisioning. Decision making can then continually evolve with models that advance in real time and are focused on actual consumer behaviours.

3. Redesign the digital customer journey – friction right over frictionless

As always, customers expect quick decisions across multiple channels and a smooth journey. Both lenders and regulators are keen to drive better customer experiences. But in this rapidly accelerating digitalised environment where there are as many new threats as there are opportunities, will it come at the expense of accurate checks? Or should lenders dial the friction up?

As we are navigating a new credit economy, lenders must rethink the digital customer journey. The experience now needs to be friction right, rather than frictionless. And this will only work with the right technologies underpinning the right data. This is where automation comes in, and it is vital that it underpins trusted data that is accurate and high quality, and continually managed and aggregated. Pre-pandemic, this would have involved an IT overhaul and months to build. The good news is that it can now be deployed and optimised within weeks, thanks to significant advances in cloud computing, SAAS and continually advancing AI and ML capabilities.

And it also enables rapid access to augmented decisioning where decisions are driven purely by data, which means lenders will be fully equipped to respond, scale or change as needed when new challenges and opportunities present themselves. And consumers will get decisions in seconds. They will be able to access what they want, what’s fair and what’s appropriate, fast.

4. Disruption is coming from non-traditional sources

Last year we saw digital engagement soar across the globe at a rate never seen before. While this was primarily out of necessity, one thing is clear, it has changed the way consumers use credit forever. Internet spending has been accelerated by five years and cashless payments have become the norm. Most notably, Buy-Now-Pay-Later as a way to pay has accelerated and is now the fastest growing payment method in the UK. Such dynamics are changing how we spend, save and borrow.

The arena that financial services and banking sectors have traditionally operated in has also changed, allowing non-traditional providers to enter for the first time. We are seeing major cloud service providers, such as Amazon and Alibaba, offering financial products, cash services and credit cards. Meanwhile, digital devices like Alexa, Siri and Google Home look set to revolutionise how people manage their finances as they bring with them the ability to offer highly personalised advice. This has added to the pressure already felt by lenders and it is no longer prudent to ignore the threats, disruptions and influences coming from non-traditional providers. All competition needs to be continually assessed.

In order for lenders to be able to keep pace and respond quickly to market shifts and disruption, they must embrace the cloud. It is cloud hosted platforms that can provide critical insight into a lender’s market opportunity for new product development and launch – alongside other valuable factors such as where they are over-indexed or exposed in their current base.

5. Open Finance innovation is vital to survival

Open Finance is here to stay and Covid-19 has proven to lenders that collaborating with third parties to explore the endless opportunities data sharing can bring is the way forward.

There is an emerging Open Data ecosystem where organisations charge to share a customer’s data – with their consent – with third parties and organisations. This means that lenders can not only save time and money by improving their own services, but help create useful solutions that improve financial literacy and provide quicker and more convenient access to services. Ultimately, adding real value for their customers.

Open Finance is set to grow as part of the UK government’s agenda to maintain the UK’s reputation as a global leader in fintech innovation. Being able to consume structured, and unstructured data – and harness open data, in categorised form, or direct from an API – becomes a crucial part of any decision strategy.

Conclusion

While it’s true that many lenders are adapting well to the new digital norm, true transformation still needs to take place for them to continue to cater to the needs of the changed consumer, and harness efficiencies in the way they operate.

In a climate of change and uncertainty, insight, monitoring and testing across the credit lifecycle will be essential. Not only to manage risk and exposure, but to identify new opportunities and meet evolving regulatory responsibilities. The pandemic has shown how quickly everyone involved in the value chain can respond, providing a golden opportunity to enhance processes even more, and create quicker, more agile, more connected response strategies.

By harnessing the right data and analytics, as well as technology to deploy change, agility and speed of response can be achieved. This will continue to be a critical enabler for lenders as the UK weathers the aftershock of the economic crisis.

Experian decisioning. Powering opportunity, today, tomorrow, together.

Experian’s next generation decisioning platform combines rich data, sector expertise, advanced analytics and cloud-based technology to integrate and automate instant decision-making at scale, unlock value, and supercharge your performance – end to end. From finding, understanding and connecting with new audiences, to making credit and lending simpler, faster and fairer for customers. Use what you know to create meaningful interactions. Minimise risk and increase value by responding with the right products and support at just the right time, based on customer behaviour.

Our platform is modular so you design your own tech stack and leverage the tools and insight you need to make friction-right, risk-right decisions and design, test and target strategies for an ever changing world. Enabling you to turn customer level analytic insights into a coordinated set of consistent decisions and next best actions rapidly deployed across product lines and channels, throughout the customer lifecycle. Simply scale up or down as you go. Cost-effective, flexible and future-proof.

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