Lending Without Branches
A hundred years ago, banks and lenders had to figure out how to get close to people because people were largely sedentary and spatially distant. If you wanted to lend money, you would better go where people lived, it would have been difficult for them to come to you. Lenders addressed this challenge by building physical retail locations where prospective customers could visit and conduct business. It wasn’t a hard sell, people were scared to keep cash under mattresses. Fear and convenience made branches a huge hit with customers.
Today, the idea of a bank is still premised upon fear and convenience but things are changing…fast. Fear is still the primary motivator behind depositing cash into a bank, it sure isn’t for returns (the fear is no longer marauding bandits – it is now financial exclusion). But what about convenience? Do we still need banks in our neighborhoods in order to conveniently consume their services? Are branches still convenient or have they become the epicenter of customer friction?
Technology has changed our perception of convenience. What is so special about the Teller Counter or the Loan Officer? Electronic banking offers exponentially more convenience than branches ever could. We can see many lenders and others still struggling with striking the right balance for customers. For many, it’s the classic “chicken or egg” challenge due to their persistent underestimation of consumer technology adoption – for them, their customers aren’t the type that use technology. Banks and Lenders overall, have played a lagging rather than a leading role in moving to ‘branchless’ with all the transformative power it brings for consumers. Many have found that being late has been costly but too many are still late.
Banks have never been the engines of technology innovation in financial services. Small, often unheard of entities have been at the forefront of microfinance, mobile money, online lending, compliance services, payments systems and more. Fintech innovation comes from the bottom of the market, not from the top where the large, traditional financial services businesses tend to be.
What does this all mean for your lending business? It means that unless you are in a geography where access to the internet is prohibited or restricted, the fuel for your loan business should be technology. It’s even more important than money because the right technology infrastructure will make your business more attractive to Investors and allow you to secure capital to lend.
Rethink branches. A branch doesn’t need to be a physical office. It can just as easily be an organization of persons within a particular geographic footprint. It’s just a way to track your business.
To effectively build a branchless lending business here’s what you need:
- A Digital Lending Platform that allows you to use the Internet as your distribution and interaction channel. If you have an old style desktop system you should change.
- A Digital Lending Platform that has a bias towards connectivity to other systems and platforms. You must plug into the larger lending ecosystem in order to deliver a full suite of services to your customers and to allow them to have a frictionless borrowing experience.
- A Digital Lending Platform that is customer-centric while being able to manage user roles, permissions and functions in a process-driven way. Going virtual makes process management critical.
Things to consider as you create and manage your virtual branches:
- Will you allow users to have access across branches? If yes, which roles and what level of access?
- Learn how to market your business digitally. Your website must be more than a digital billboard.
- Process discipline across Branches.
- Proper cross-branch reporting
Take the money saved from building out physical branches and spend it on:
- Hiring great people. Are your employees digital ready? Having a smartphone doesn’t mean you understand MS Teams or GSuite?
- Continuous training on how to be effective and productive in a virtual business environment.
- Passing on savings to borrowers in the form of lower rates and more services.
What are your thoughts on the future of physical branches in financial services? Please share.
To Your Success!