Hurdles to scale to become a lender
Lending is a profitable business and is probably as old as time itself. Lending has subsequently evolved into fintech, which when done well, grows faster and attracts significant valuations than traditional banks.
But lending is a tough business and those who do it deserve special praises and sometimes even prayers; they help the sick get the money needed to get the required care; provide the widow access to the funds to care for her children and help that young couple get their own home and start a family of their own.
Businesses thrive on credit; credit drives growth and keeps the wheels on the economy turning. The realities that necessitate credit have made it a profitable basis for a business — In Nigeria, the most profitable companies are banks and credit is the foundation of their business.
Does becoming a digital lender sound attractive enough yet?
Well not so fast.
Building a lending business isn’t for children
Lending comes with a certain level of risk and digital lending, even more so. In building a competitive and foolproof digital lending proposition, there are a few boxes you have to check and double check.
Technology makes all the difference; you need disruptive tech that allows your business to scale. Don’t tell us you’re fine with being a local champion. Even if you are addressing a niche market, technology is quite the enabler and can easily address your customers’ pain points and make the entire loan process from origination to recovery seamless. Digital tech is being used to save employees time by automating what would have otherwise been time consuming and eventually redundant parts of the process. For example, why spend time transferring information from paper forms filled by your customers into an Excel when they could have filled those information themselves directly using a form?
If tech is the soul of digital lending, then data is the blood. You need enough of it and what you had yesterday isn’t sufficient for today.. Data is particularly important for making decisions for underwriting. Getting the much needed data can help you determine character or willingness (blacklist and credit bureau data) and capacity (e.g. Mono for statement data) to repay. Successfully scaling this hurdle is where most of the solution of identifying Nigerians who don’t like to pay back before they strike again lies.
This perhaps completes the core lending trinity: tech, data and capital. It is no secret that as advantageous as tech and data are for a digital lending proposition to be successful, access to these is expensive expensive (yes, twice for much needed emphasis). You need capital to build and access the tech and data your business needs. Bootstrapping, grants, and investors are the most common options, each with its own pros and cons.
What is the point of building a solid proposition that has limited reach? Establishing your product delivery through multiple channels such as mobile app, web, USSD, etc. boosts the appeal and discoverability of your product by a lot. It is imperative to try as much as possible to address different segments of the market to improve scalability. While some of your customers may prefer to download your mobile app and conduct their activities from there, some others may be more interested in conserving storage and data consumed and opt for the web app instead; and some may not even have smartphones but still wish to patronize you and opt for the USSD channel (see … more people are covered this way).
Your loan decisioning process could benefit from decision models (preferably with extensively configurable modules) used for credit scoring. Let the system do the work and mitigate the room for error or bias.
Keep in mind that this is different from your operating capital with which you pay salaries and run your business. You need cash to lend and growing your customer base or loans booked is unavoidably tied to this.
No matter how robust your system may be, you need integrations into a whole bunch of things and places to make things work; especially to get paid. Some of the core integrations include those into payments providers, data providers and even partners when expanding your proposition or developing a new one. The integrations make up a significant part of your lending stack and support the entire process.
So now you’ve got all the tech and data and fancy parts. Now what? You need tons of people with the experience to do this, do it well and do it at scale. Don’t assume strolling into a bank and taking their staff with you will cut it; they might be the best where they’re coming from but a digital lending model is a far cry from the traditional bank model. You need data scientists to design your models and product managers and designers to deliver the best possible user experience. And of course, you need engineers, the types with tattoos, braided hair, and slouched pants. Just turn your puritanical eyes to one side and let them do their work.
Now, how will people know about this fantastic product you’ve built if you don’t tell them about it? Even after jumping through all the hoops above, you’d need a digital marketing plan and specialist that cut through the digital cacophony and are able to let your voice stand out. It’s not about how large the marketing budget is, but rather how relevant the approach is. Be visible without harassing your audience; focus on top of mind awareness and driving conversions with calls to action.
You might be the one giving your customers money, but get ready for all the demands that will appear to pour in endlessly. Don’t underestimate the power of A grade support; create an awesome support team to always be there for them. People want to be treated well and guided through their credit journey.
We’re done for now. Phew.
No, we’re not done yet (psych!). Running a digital lending business continues to evolve and you have to be ready to evolve even faster.
These requirements are what scare prospective lenders away. Well, we assume anyone with common sense should be running right about now as well. But at Lendsqr, we have created the platform for you to navigate this obstacle course for free, straight out of the box. Sign up for free and start lending in minutes or talk to someone at email@example.com to get started.
See you at the finish line!