The European market for unsecured lending remains largely underpenetrated for various reasons. Through digital innovations, lending can be made easier for credit users and credit issuers. But, how can digital shape the credit landscape for the better? What are success stories that you can learn from and are relevant to your organization? To answer these questions, we will explore the value-creation of digital innovation on three aspects and how your peers have made an impact.
Digital shaping the credit landscape
Technology makes lending easier for both credit users and credit issuers. Digital credit is not a singular product. You can find a variety of successful product designs and go-to-market models available in both Europe and North America.
In this article, we cover how digital innovations:
- Impact proposition design and business models.
- Impact the customer journey.
- Drive credit go-to-market considerations.
To show the value-creation behind digital innovations, we’ll also illustrate these digital innovations with successful real-life examples.
#1. Digital impacting proposition design and business models
Digital innovation creates new business models, value propositions, and can impact the transformation of traditional products (below in figure 2).
Figure 2. The impact of digital on proposition design and business models. Source: Accenture
We define digital credit as the application of digital user experience, process automation, and data-driven techniques and technologies to lending products.
Examples of primary digital technologies include initiation and servicing mobile apps, self-service portals for borrowers and partners, API-integrated distribution ecosystems, and machine learning credit-decisioning models. These technologies support the digital transformation of a range of traditional lending products, like personal loans, invoices and check-out, installments, and credit card features.
#2. Digital impacting the customer journey
In addition to product innovation, digital technologies can transform your customer experience across the account life-cycle (see figure 3):
Figure 3. Opportunities to enhance the customer journey along the credit value chain (Source: Accenture)
Digital enhancements across the customer journey help to improve the customer experience and the account profitability for issuers. Among others, these enhancements include:
- Sign-up automation: Allowing interested borrowers to request and lenders to approve credit in real-time, across channels.
- Data-driven, real-time, automated credit decisions: Using non-traditional data and artificial intelligence to continuously get smarter about approving customer lending requests.
- Tailored product features: Digital allows issuers to tailor an offer for an individual and the borrower to change and adapt their payback terms.
- Self-servicing: Digital platforms, such as apps and portals, allow customers to service their accounts on their own time, and without cost.
- Smart collections: When credit goes bad, data models can help to drive smart investment in collections activities. For instance, at what time of the day to contact a defaulted lender best for payment reminders.
#3. Digital credit go-to-market considerations
Best-in-class digital credit players also exhibit distribution models that are designed to scale rapidly, using digital technologies and ecosystems as detailed below in figure 4.
Figure 4. Distribution models designed to scale rapidly using digital and ecosystems. Source: Accenture.
Digital credit innovators often rely on partner-driven distribution models, enabled via APIs. Partners integrate credit offers to both drive incremental sales and respond to often lucrative commissions. For example, payment service providers (PSPs) in the retail sector generally work with digital invoicing suppliers to enable a pay-later or pay-by-installment option within the e-commerce checkout.
Partner distribution is critical because success in digital credit requires positioning for spontaneous, real-time uptake by consumers. Even in markets where credit-seeking is uncommon, consumer show a willingness to accept credit if it is presented in a spontaneous and real-time fashion.
Market leaders also leverage digital technologies to support their partners. For example, through a partner dashboard, which allows partners to support and observe sign-up activities or to modify product features.