Lending as a Service: Opportunities to Grow in 2021

Lending as a service is one of the latest trends of embedded finance and Fintech as a whole. This market sector is anticipated to double in the US and UK by the end of 2024, according to LendIt. Such streamlined growth is driven by the dramatic benefits for banks and non-bank lenders. 

By replacing legacy applications with a natively digital LaaS platform and realigning business processes, loan approval can be completed in minutes, with funds disbursed within hours. LaaS impact studies have found that key costs of  of acquiring and servicing loans can be reduced by up to 80 percent. All this shows that LaaS is a prospective sector to bet on in 2021. The following are some of the market gaps that exist in this niche. 

Growth gaps to fill in 2021

We dived deeply into the reasons this sector has grown at a rapid pace and came up with a short list of the top gaps to fill during 2021 to gain the upper hand.

Integrations with banks

The main clients of LaaS platforms are banks. Because of the opportunities they provide to various client segments, private creditors, credit unions, and banks are considering LaaS integration more and more closely. 

For instance, according to CB Insights, banking-as-as-service (BaaS) platform Mambu partnered with Fintech and bank infrastructure provider Alchemy to build a lending decision engine that will enable community banks and credit unions to deliver new loan products to the market faster. Banks and credit unions can leverage Alchemy’s front-end lending solution and Mambu’s back-end processing solution to offer new lending products to both consumers and SMBs. 

There are also solutions to simplify integration with open banking. For example, Connect Flow allows lenders to connect to open banking. When clients connect their bank accounts via Connect Flow, it instantly collects and analyzes verified transaction data and then gives them a complete history and characterization of the payer.

API optimization

Open banking integrations smooth the way to a wide range of clients and provide necessary customer data to check clients before giving them loans. The truth is that banks vary tremendously when it comes to infrastructure and needs, so it’s hardly surprising that an out-of-the-box LaaS solution rarely fits well. Those companies that offer a small number of suppliers (e.g., only one credit risk analysis partner) for the entire lending cycle will have fewer banks as clients. So integrations are a huge growth point for LaaS platforms.

Upstart went further and came up with its credit decision API, an artificial intelligence-based credit scoring solution. This API can be integrated with other lending platforms, providing other market players with accurate and quick decision-making on loans; otherwise, you will need build your own open API or reengineer the existing one to share your platform capabilities and data with partners. Integrating APIs such as the one by Upstart enables expansion into other market niches such as personal loans, auto loans, private student loans, and B2B loans. 

Each company encounters technology debt at some point in time. APIs get outdated too, which negatively influences integration potential and client base growth. That’s why it’s always beneficial to optimize or reengineer an API before taking the next steps in developing the product. Keeping your API outdated and ignoring integrations with open APIs limit your ability to scale to the bigger customer range. 

B2B funding marketplace

Small and middle business lending is the Holy Grail for LaaS. Without time-boosting technology, the loan processing took enormous time, even for small sums. The COVID-19 pandemic made LaaS especially relevant, and it began transforming banks. The traditional approach to SMB lending was time-consuming and often led to different types of mistakes. By using LaaS, banks are now able to quickly process and issue loans to a large number of companies without requiring a lot of resources. 

Time plays the most important role in this context, with AI algorithms for risk assessment, integrations with open banking, and LaaS system components being capable of accelerating the process. For example, NatWest and Ezbob launched a branded digital lending platform to enable rapid decision-making on loan applications for small- and medium-sized businesses. 

Companies such as Funding Options offer simplified access to financing for businesses. Businesses approach Funding Options to get finance, which analyses them and then chooses the best fit from 100+ lenders connected to their marketplace. This process means companies benefit when connecting to such marketplaces because they are connecting with existing lenders in their database, which improves the lending experience or expands functions. The same is true in the reverse: lending companies listed in such marketplaces get a stable inflow of business clients.

Integrations with payment solutions

There are many ways to make an LaaS platform more successful, let alone banks and B2B funding marketplaces. Payment pre-authorization provided by companies such as ArioPlatform allows LaaS to offer customers funding for their bills before end customers pay them, thereby being able to plan finances and not incur losses due to payment delays. This feature has great potential if it is either integrated from a solution such as ArioPlatform or developed from scratch.

Summary

Lending as a service is a prospective niche to jump on this year. Numerous reports and market research anticipate this sector will grow significantly over the following year, which makes it worth paying attention to. If you see the value in joining the trend by implementing LaaS within your business, it’s the right moment to give this opportunity traction.

About INSART

INSART is a Fintech engineering partner with outstanding knowledge and experience in developing Fintech solutions, assembling dedicated teams for Fintech projects, and managing them in a long-term perspective. We teach our developers financial concepts and foster a culture of financial literacy and well-being across the company. Our expertise saves you at least 25% time comparing to teams inexperienced in the business domain area. INSART is a leading partner of WealthTech Club. Contact Vasyl Soloshchuk to learn details. Visit site.