Launching an Online Lending Business: A Blueprint for Taking Off

consumer loans

Consumer lending in the US reached nearly 1.5 trillion dollars in 2018, according to the Federal Reserve Board of Governors, and European banks reported a demand growth of 25% in the second quarter of 2018. Needless to say, it’s a good time for lending. While banks are still paying out the lion’s share of the […]

The post Launching an Online Lending Business: A Blueprint for Taking Off appeared first on Lending Times.

consumer loans

Consumer lending in the US reached nearly 1.5 trillion dollars in 2018, according to the Federal Reserve Board of Governors, and European banks reported a demand growth of 25% in the second quarter of 2018. Needless to say, it’s a good time for lending.

While banks are still paying out the lion’s share of the loans, alternative lenders are gradually moving in to fill holes in the ever-increasing lending market.

Fintechs Exploit the Growing Market

The traditional banking sector is entrenched in their old way of doing business. Banks and customers alike expect a certain customer experience and style of operational management. While this may appeal to some customers and lending institutions, it comes at a significant cost. Each teller or call-agent interaction at a traditional bank costs an average of four dollars compared to merely ten cents for a mobile interaction.

While the profits of running a fintech are clear, the process of getting up and running is not without its challenges.

Practical Steps for Setting up a Lending Company

Lending markets vary from country to country depending on regulations, legislation, and consumer behavior. This simple roadmap outlines the general process to get started.

Point One: Becoming A Legitimate Enterprise

In order to start lending online, business owners need to create a legal entity. This is the vehicle that all lenders will use to navigate red tape. As this process varies greatly from business to business, it may take as little as 1% or as much as 20% of your initial startup budget.

The basic steps include:

One possible way of circumventing this is to purchase an already existing bona fide legal entity or lending franchise. For example, the largest franchise lender in the US is Liquid Capital. The short-term costs may run a bit higher, however, the long-term benefits of using an existing household name could potentially pay large dividends.

In addition to the unique requirements for lending entities, regular business costs will often crop up as well. Among others, these could include hiring and administrative overhead and office rental. On average, these costs could take anywhere from 10%-12% of your startup budget.

Point Two: Raising Funds

Raising capital to lend out is the primary operational challenge for any lending startup.

Usually the best way for a startup to begin lending is with their own capital, but when that is not possible (or favorable) funds can be raised in the marketplace. Recently, institutional lenders have become much more comfortable with providing capital to lending startups following the rise of the P2P model.

Any lending company funded by public investors will have to factor in the cost of hiring a Certified Public Accounting firm to perform an audit to certify all financial data including their business plan, valuation, and other financials.

Point Three: Using the Right Technology Platform

The core of any modern lending company is the technological platform it runs on. The platform is the brain of the business and takes time to nurture and grow. It is best to do this in parallel with the other points as it is the primary capital asset of the operation.

When it comes to platforms, there are two main options: building your own from scratch or purchasing an existing platform from a vendor. This crucial decision will have a long-term impact on the business and will greatly affect setup and operational costs. Each option comes with pros and cons:

  • Building a lending system from scratch is more time-consuming, and can take up to 12 months. It requires a substantial upfront investment as you will need both financial and technological expertise to pull it off. Additionally, time-sensitive shifts in the market could be a factor, so timing your release is of paramount importance. While this option could be risky, it gives lenders full control over the product they build.
  • Purchasing an existing lending platform is generally less expensive and faster. There are a wide range of solutions both out-of-the-box and fully-customizable. The options fall into two general categories: traditional core banking systems (eg. Oracle, Temenos, and Infosys) or fintech-focused solutions (eg. HES Lending Software).

There are number of software challenges that digital lender should consider when choosing a platform:

  • In order to optimize productivity, systems often require further customization.
  • Some systems only cover a single or hand-full of loan management aspects like underwriting, loan origination, or loan servicing, and do not support many back-office functions.
  • Systems often do not integrate with the majority of third-party services, so lenders might end up needing to mix and match software to run their business.
  • Some systems do not extend well into new markets or product segments.
  • Some systems require license upgrades to increase the loan volume or number of user accounts.

In Conclusion

With a good understanding of the industry, thorough planning, and about $200,000 to $1,000,000 of startup capital, a state-of-the-art lending business can be launched. Not only do these businesses financially benefit their owners and investors, but they come with the satisfaction of knowing that every loan issued has great potential for improving the lives of the borrowers and their communities.

Author:

Natalie Pavlovskaya is the Chief Marketing Officer at HES (HiEnd Systems), a fintech company behind comprehensive lending and credit scoring solutions. She is a Marketing Executive with international business experience in CIS, EMEA, and US, working for more than 7 years in digital marketing.

The post Launching an Online Lending Business: A Blueprint for Taking Off appeared first on Lending Times.

Online Lending SaaS: Small Business Lending Keeping Up With the Times

online lending technology

D+H is a global payments and lending technology provider based out of Toronto serving nearly 8,000 financial institutions. With revenues of over $1.5 billion and 5,500 employees, it’s a bona fide giant in the financial technology industry. The company has realized the shift towards digital lending and mobile-first experience, recently launching Total Lending Small Business, […]

online lending technology

D+H is a global payments and lending technology provider based out of Toronto serving nearly 8,000 financial institutions. With revenues of over $1.5 billion and 5,500 employees, it’s a bona fide giant in the financial technology industry. The company has realized the shift towards digital lending and mobile-first experience, recently launching Total Lending Small Business, a mobile-first lending solution designed to boost traction for traditional lenders and improve the lending experience for small business owners across the United States.

Product Development

D+H hired David Boswell as head of its new lending products division. Under his supervision, they researched the banking sector for a year-and-a-half to spot opportunities for a new product. Before launching the solution, it was put through rigorous testing and, in March 2017, Total Lending Small Business kicked off. A cloud-based SaaS solution developed to target the small business space, banks and other lenders can use it to deploy an online loan application for small business owners in record time.

The solution is a lot quicker and more efficient than paper-based branch models and processes more loan applications with the same amount of resources. It is a pure win-win as there is revenue augmentation without additional costs.

Rather than try to find something new and exotic, D+H went back to the basics and tried to tackle the problem of borrower experience in the loan application process. Even though the solution is primarily all about elevating lender efficiency and borrower experience, the product offers much more. Since it is cloud-based, it will help lenders reduce overhead expenses such as office space and manpower while reducing the chance of human error. That will improve processing speed and customer satisfaction.

Features of Total Lending Small Business

Total Lending Small Business is an entirely online-based application available in both mobile and desktop versions. The USP is its interactive interface. Borrowers can have virtual conversations that develop questions, and answers, on the go. This allows for a hassle-free experience compared to other platforms that use a preset form for all borrowers.

The platform is particularly beneficial as small business owners sometimes don’t really understand the technical details associated with loan applications. Through live interaction, the platform is able to intuitively interact with each borrower. For now, D+H is sticking to the application process, but the company is expected to add other features to the platform that include uploading documents, upselling, and underwriting.

Buy or Build

Some banks are not large enough to develop their own platform or technology solution. Therefore, it makes sense for them to buy a specialist solution. D+H aims to target about 100 banks up to $20-30 billion in revenue.

Small business lending has proven to be an Achilles heel for banks. The financial crisis led banks to vacate this space as the risk was not consummate to returns. But with growing competition in other lending segments, banks have finally started taking the SMB lending space seriously again. They are either developing their own SMB lending solutions or are partnering with alternative lenders with a proven track record.

One association that has made waves in the lending space is the Chase/On-Deck partnership. On-Deck has turned into a tech provider while Chase Bank is leveraging its existing client base and balance sheet to penetrate the SMB lending market.

Over the years, SMB lending has evolved manifold, and a lot of non-traditional lenders are beginning to enter the space. This makes it pertinent for brick-and-mortar lenders to shore up their SMB customer bases by introducing lending systems commensurate with the technology currently prevalent in the market.

Mortgage Lending Solution

Mortgage lending solution is the principal business of D+H. The company got its start in the early 2000s when the internet gaining popular traction. The premier software is available as an SaaS deployed in the cloud or an on-premise platform. Its main targets are online mortgage businesses.

Solutions range from POS origination, processing, and compliance documentation. All these solutions are highly customized for the customer experience. Earlier, only 2% of mortgage applications were completed on mobile devices, but in last 2-3 years, that number has jumped to 20%. This significant increase in number is due to busy lifestyles and smartphones increasingly replacing desktops and laptops for private browsing.

While developing its SMB lending platform, D+H placed specific emphasis on this shifting trend.

Responding to the trend, D+H launched its second Mortgagebot solution. Mortgagebot LOS, a total lending mortgage solution, has signed over 200 customers in two months since its launch. Company executives believe the growing interest in a mobile-optimized experience will lead to greater demand for the product.

Next big thing: Smartphones

These days, more people rely heavily on their smartphones, yet lending companies don’t develop or design software tailor-made for them. D+H believes the introduction of smartphone solutions into the technology mix will completely change how lenders and borrowers interact. The company has been getting feedback from testing its solution on a real user base to ensure an intuitive customer experience.

Making a difference

Many players have entered the market with their white-label online lending platforms. TransUnion recently launched Find My Offer – “a set of configurable white-label web screens that support a lender’s consumer prequalification and digital prescreen initiatives.”

All of these online lending platforms have a similar set of features, and lenders depending on such platforms to boost growth will find themselves behind the curve. Such platforms are a commodity now, and compulsory for operating a lending business.

Author:

Written by Heena Dhir