New technology and consumer expectations are erasing the line between payments and lending. For many years, Financial Institutions (FI) and in some cases even Financial Technology (Fintech) providers organized their internal departments as either payments or lending focused. The concept was that payment involved one time customer interaction while moving money and lending needed painstaking underwriting decision and ongoing customer management.
This concept is being turned on its head for several years now. When Fintech companies first started with personal loans more than a decade back, one of the selling points was direct and fast receipt of money in applicant’s bank account. Digital money movement became a key feature of the loan.
Autopay also became a key aspect of Fintech loans. Autopay has been around in bank’s consumer portal for years. Convenience was touted as the key reason why consumers should sign up for auto pay. Fintech lenders tied loan underwriting and interest rates with autopay from bank accounts.
The landscape changed further when Buy Now Pay Later (BNPL) entered US consumer market. Consumers can pay off a purchase over few weeks by using their credit or debit card without any interest or fee as long as they pay on time. Industry data shows overwhelming majority of consumers use debit card. Now debit card and loan are tied together.
In 2019 payment networks started offering APIs for lending on debit and credit card. This is another step towards erasing the line between payment and lending.
Imagine for a moment that a FI is providing BNPL service using debit card. Is this considered a loan product or payment service? Which department manages the product? Can the banking core talk to loan underwriting or loan processing systems?
Or imagine that instead of getting cash from ATM using credit card and a PIN, or writing a balance transfer check to himself or herself, card holder can get the cash directly to their bank account, even if it is a different bank than the credit card issuer. Credit card or LOC (Line of Credit) providers can offer the same digital disbursement service as the Fintech lenders.
This service requires merging traditional payment utility with FI’s lending infrastructure. Can the customer portal talk to payment utility in real time? Can a credit card holder get money sent to their debit card with instant confirmation?
Consumers want more convenient, digital solutions with real time control. Pulling together these seamless solutions require disparate systems like payment gateway and account opening platform, or debit card processing and core loan platforms to talk to each other. Rapid evolution of API driven orchestration has brought the technology within easy reach.
FIs need to reconsider all aspects of business, from organizational structure to technology investment to internal revenue sharing process, and deliver services straddling multiple traditional banking products.
The (r)evolution is already in progress. Would FIs adapt to their customer need?
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