In an industry facing a constant onslaught of regulatory and media scrutiny, new product development can be a challenge. Meeting consumer demand for fast and accessible alternative credit with compliant approaches and affordable products is a complex mix. Some of the biggest companies in the industry have found, at their great cost, that getting this mix wrong can knock millions off their bottom line and cause a level of reputational damage that’s difficult to recover from.
GAIN Credit operates two UK products, Lending Stream and Drafty. Unlike many competitors, we were not required to make any changes to our products to be fully authorised by the FCA. GAIN Credit is now one of the top three digital alternative lenders in the UK, with significant growth despite the overall sector continuing to report a reduction in volume following FCA regulations.
We’ve achieved these results because we put the customer at the heart of product development. Before launching our award-winning Drafty product, for example, we undertook extensive research into borrower needs and pain points. Using these findings, we developed an affordable alternative to payday loans, unauthorised overdrafts, and sub-prime credit cards, in the form of a ‘virtual’ credit line with no fees and no plastic. Drafty lets customers repeatedly draw funds from their approved ‘pot of cash’ without ever having to reapply.
There’s huge scope for product innovation in the underserved consumer credit market. Drafty is just one successful example, but there will be more to follow as we continue to create new digital solutions to customers’ evolving needs, enabling people to explore new ways to gain control of their financial lives. Leading the way on user experience and technology innovation also enables companies like GAIN Credit to remain ahead in the face of intense competition. The best innovators will be those who build product functionality to meet emerging industry and regulatory developments while delivering new value for borrowers.
Open Banking Opportunities
An example of an emerging development in the digital consumer credit space is ‘open banking’, which will make it much easier and safer for customers to share their financial data with lenders. Besides benefiting borrowers, this presents a great opportunity for lenders like GAIN Credit, that use data analytics and machine learning to make lending decisions. Open banking should enable lenders to receive customer data not previously available to them and to use this information to make more informed underwriting decisions. This will likely result in many consumers who are currently unable to access credit being able to do so.
Open banking will also help lenders ensure they’re granting credit to people who are able to afford their monthly repayments, given their income and expenditure behaviour. ‘Affordability assessment’ is not only important to protect vulnerable customers from getting themselves into a deepening debt spiral, but is also a key area of focus for the regulator.
There are likely to be further benefits from open banking which we can’t even fully imagine today. The system could help lenders improve the customer’s monthly repayment process, allowing people to make repayments directly from their bank account at the click of a button. Today, many customers use their debit card to make monthly repayments and some run into problems due to an expired card or other similar issues. By making it more convenient for borrowers to repay lenders, open banking should enable people to exert better control on their finances – a key goal for consumers in the underserved credit ecosystem.
Open banking is also likely to create a safer environment for consumers. The scheme will be overseen by a trusted regulator, which should ensure that customers are confident in using the system. In addition, borrowers will be able to share their confidential financial data directly with lenders through secure APIs (application program interfaces). So rather than having to share their bank data with third parties, who would then analyse and share this data with multiple lenders, customers will be able to grant access to their financial data directly to lenders from within their own bank account. This will be both safer and easier from the consumer’s point of view.
I believe there has never been a better time for borrowers or lenders in the alternative consumer credit space. The bar has been raised by customers, the regulator, and technology and analytics-driven lenders. For those lenders that have stepped up, the marketplace is ripe for customer-centric product development that exceeds ever-growing expectations.
Vijay Sachidanand, Vice President Product Management, GAIN Credit