The rise of fintech has disrupted traditional lending models. The typical simple fintech website with a streamlined application process hides a bigger secret that is surprisingly not based on tech stack: advanced, regulatory compliant, and adaptive lending strategies that usually come at a high cost to replicate. To support their businesses, fintech lenders are leveraging AI, and traditional lenders must adopt AI to stay competitive.
In this context, it is essential to understand how to beat fintech lenders with AI. Several top fintech lenders have been at the forefront of using AI in lending strategies, such as LendingClub and SoFi. These companies’ use of AI-powered strategies has enabled them to launch in niche markets, streamline their lending processes, reduce costs, and provide borrowers with seamless digital experience and personalized loan options.
In this article, we will explore how you can use AI for lending. Leveraging our team’s hands-on experience in the fintech space for the past 10 years, we’ll take a closer look at the key components of AI-powered lending strategies and how you can implement them in your lending business to stay competitive and drive growth.
Whether you’re a traditional lender or a fintech startup, leveraging AI in your lending strategies can help you improve decision-making, enhance the customer experience, and grow your business.
The 5 Steps of Fintech Competitive Advantage In Lending
To be as competitive as top lending fintech companies, a lender would need to offer a comparable level of service, technology, and pricing. Here are some steps that a lender could take to compete:
Offer a seamless digital experience
Top fintech lenders are known for their easy-to-use online platform that allows borrowers to apply for loans and investors to fund them. To be competitive, a lender would need to offer a similarly seamless digital experience that makes it easy for borrowers to apply for loans and investors to fund them.
Here are some AI-powered strategies to offer a seamless digital experience:
· Customer-Centric Approach: To offer a seamless digital experience, it’s crucial to prioritize the customer’s needs and preferences. You need to understand your customers’ pain points and design digital solutions that address them effectively. Conduct user research, create user personas, and continuously gather feedback to improve your product. AI tools can quickly identify the characteristics of your market and extract user personas across large data samples in your internal datasets and in any external vendor data while staying fair, equitable, and compliant. It will allow you to build a diverse lending segmentation for each of your products.
· Intuitive User Interface: A user-friendly interface is essential in fintech. The design should be intuitive, easy to navigate, and simple to understand, even for non-tech-savvy users. Consider visual cues, simple language, and easy-to-find navigation menus. As performed by professional user interface developers, using AI will enable you to detect which buttons, features, and pages drive higher customer interest and conversion.
· Robust Security: Security is critical in fintech, and customers expect their sensitive financial data to be kept safe. Ensure your platform implements the highest level of security measures, including encryption, secure data storage, and two-factor authentication. Leveraging AI cloud technology will help your security team centralize their effort and save time and cost instead of managing a large, unscalable, and fragmented network of users and data on the mainframe.
· Personalization: Offering a personalized experience is key to creating a seamless digital experience. Studies show that 67% of consumers think it’s important for brands to automatically adjust content based on context, so these types of changes can make all the difference. Leverage data and analytics to understand your customers’ behaviors and preferences and tailor your offering to meet their unique needs. Fintech lenders have focused on niche markets to be able to deliver high personalization. The same can be accomplished with AI-powered product strategies across all lending portfolios. With AI, personalized loan options can be developed, presented, and funded within minutes to provide lifecycle marketing that aligns with the entire customer lending journey or fulfill their immediate emergency needs.
· Integration: A seamless digital experience means integrating different systems and platforms to create a cohesive experience. Fintech providers focus on creating an ecosystem of integrated solutions that work together seamlessly. The easy way to accomplish this for traditional lenders or new fintech lenders is to use a new universal API platform with AI cloud technology. This type of platform allows you to integrate, test, and deploy new strategies within minutes without having to convert or upgrade your current tech stack (Point Of Sale, Loan Origination System, rule engine, funding, and account management systems…). The other benefit is that it can pre-test vendor data and connectivity to guarantee a smoother and faster integration.
· Mobile-First Strategy: Mobile devices are the primary mode of digital interaction for most users with 60% of the website traffic in Q1 2023. A mobile-first strategy is essential to offer a seamless digital experience. Make sure your platform is optimized for mobile, with a responsive design and an easy-to-use mobile app. Certain features such as form field length, button placement, font size, and document upload success can be quickly analyzed with an AI platform to test and validate the implementation of a new mobile platform.
· Continuous Improvement: The digital landscape is continuously evolving, and so should your lending platform. Keep track of the latest trends and best practices, regularly update your platform, and continuously gather feedback from users to improve their experience. With AI, you can screen your customer survey answers, and your customer complaints, prioritize, and make the relevant improvements that will provide the highest customer satisfaction and Net Promoter Score.
Use data and technology to streamline underwriting
Fintech companies use data and technology to analyze borrowers’ creditworthiness and determine their ability to repay loans. To be competitive, a lender would need to leverage AI to use similar data and technology, streamline the underwriting process, and make more accurate lending decisions.
Here are some ways to use AI to streamline underwriting:
· Data Analytics: Data analytics can help fintech providers analyze vast amounts of data quickly and accurately, enabling them to make informed decisions about risk assessment and pricing. They can analyze data from various sources such as credit reports, social media, and transaction history to assess risk and determine policy pricing. Enhancing your internal process can take years due to the complexity of the analytics and the engineering set-up cost of new data sources. On the other hand, leveraging an AI cloud platform is cost-effective and gives your business the agility it needs to scale, standardize your analytics, and control your data quality.
· Machine Learning (ML) and Artificial Intelligence (AI): ML and AI can be used to automate underwriting tasks, such as risk assessment and policy pricing. ML and AI algorithms can analyze data and identify patterns that humans might miss, leading to more accurate risk assessments and faster decision making. With data science professionals quitting bank jobs at record rates, many lenders have turned to alternative skill acquisition through startup partnerships to provide these specialized capabilities.
· Predictive Modeling: Predictive modeling involves using historical data to predict future outcomes. Fintech providers can use predictive modeling to assess risk and determine policy pricing. This approach can also help identify potential fraud and mitigate risk. AI platforms can not only provide the fintech providers predictive modeling, but also document, validate according to regulatory requirements, monitor, and adjust it in real-time.
· Automation: Automation can help streamline underwriting processes by automating repetitive tasks such as data entry and document processing. This approach can help reduce errors, save time, and improve efficiency. For example, Identity Verification and Verification Of Employment processes can be streamlined, reducing customer friction for documentation requests, by leveraging partner solutions with reverse lookup engines for name, email, phone, address, SSN, employer… Existing AI cloud-based platforms have these partners pre-integrated, tested, and ready to be deployed in your tech stack.
· Digital Technology: Digital technology can streamline underwriting by enabling fintech providers to gather data from customers in real time. Online web pages can be used to collect data such as financial history, transaction information, and behavioral data. This information can be used to assess risk and determine pricing. The sheer size of the collected information, the need for adequate processing speed, and storage make AI cloud-based technology platforms the best fit to answer lenders’ needs.
· Cloud Computing: Cloud computing can help fintech providers store and process vast amounts of data securely and efficiently. Cloud-based platforms can be used to access data and analytics tools, collaborate with team members, and automate workflows. Recent AI cloud computing platform deployment showed improved productivity and collaboration among cross-functional teams: now new strategies can be deployed 80% faster than before.
Offer competitive pricing
Fintech leaders offer loans at competitive interest rates, which helps to attract borrowers and investors. To be competitive, a lender would need to offer similarly competitive pricing that reflects the level of risk involved in lending, also known as risk-based pricing.
Here are some strategies to offer competitive pricing like a top fintech lender with AI:
· Cost Optimization: Fintech companies focus on optimizing their costs to offer competitive pricing. This can be achieved by streamlining processes, reducing overheads, and leveraging technology to automate workflows. Recent AI platforms are able to centralize this effort, create consistency with compliance in mind, and deliver stronger results at a lower cost across all core and supporting functions.
· Data Analytics: Data analytics can help fintech companies analyze market trends, customer behavior, and competitor pricing to determine optimal pricing strategies. Fintech companies regularly monitor and adjust their pricing strategies based on data insights. With AI, any lender can access these insights with best-in-class data visualization features using external and internal data sources instantly available in one platform.
· Value-Based Pricing: Value-based pricing involves setting prices based on the perceived value of the product or service to the customer. Fintech companies differentiate themselves from competitors by offering unique features, superior customer service, or better user experience. Some of the unique features are no early repayment fees, reduced pricing with automated payments, and preferred pricing based on relationship (long-term deposit or loan customer with good repayment history…). AI platforms can read through siloed product offerings and features and provide lenders with the insights they need to offer preferred pricing for their best and low-risk customers.
· Dynamic Pricing: Dynamic pricing involves adjusting prices based on real-time market conditions, demand, and supply. This approach can help fintech companies optimize revenue and remain competitive. This brings the need for ongoing monitoring and adjustments based on multiple internal and external factors. AI lending platforms offer the best support with higher performance and a lower cost than traditional resources.
· Bundling and Cross-Selling: Fintech companies can offer bundled products or cross-sell additional products or services to customers to increase revenue and improve customer retention. Some of the early wins from AI platforms over internal resources is the ability to work cross-functional and across products. The golden “cross-sell” standard that the traditional banks are promoting but can hardly implement for the past 20 years due to conflicting team objectives can finally be developed and implemented at any institution with centralized AI cloud platforms.
Provide excellent customer service
With the assistance of advanced technology, fintech companies provide excellent customer service, which helps to build trust with borrowers and investors. To be competitive, a lender would need to provide similarly excellent customer service that is responsive and helpful.
Here are some strategies to provide excellent customer service like a top fintech lender:
· Communication: Effective communication is critical for providing excellent customer service. Fintech companies communicate clearly and promptly with customers through various channels such as email, phone, chat, and social media. They also provide self-service options such as FAQs and knowledge bases to help customers find answers to their questions. With the emergence of AI, it’s becoming easier to compile large files of customer feedback and create the most pertinent educative material on credit and FAQs. Videos that can dynamically be tailored to your customers with AI inputs are a great way to be on top of your competition.
· Personalization: Personalizing the customer experience help fintech companies build stronger relationships with customers. Fintech companies use data analytics to personalize communication, product recommendations, and pricing. They also provide personalized support through dedicated account managers or customer success teams. Speed and access to relevant customer preferences are key to success and can be fed to your current systems from AI platforms.
· Empathy: Fintech companies show empathy and understanding when dealing with customer issues. They listen to customers’ concerns, acknowledge their frustrations, and work to find solutions that meet their needs. Understanding when to escalate a call or how to show customer understanding with the right custom programs can be daunting without analytics and resources. There’s a lot to gain by using AI platforms to support your efforts, segment your customer needs, create adequate programs, and improve your customer satisfaction.
· Training and Education: Fintech companies invest in training and education for their customer service teams. They ensure that their teams are knowledgeable about the products and services they offer, as well as industry regulations and compliance requirements. They also provide ongoing training to keep teams up to date on new features and updates. Using a centralized and regulatory compliant AI platform allows easier communication between teams of new features, new products, and helps your teams stay on top of compliance requirements.
· Feedback: Fintech companies solicit and act on customer feedback. They can use customer surveys, Net Promoter Score (NPS) surveys, and other feedback mechanisms to understand customer needs and preferences. They also use feedback to improve their products, services, and customer service processes. Traditional manual processes lack speed and consistency to surface feedback across all teams. With centralized AI technology, customer feedback is instantly shared and translated to action items and suggested process changes with the relevant employees to guarantee that the customer needs are logged and answered appropriately. Latest NPS from lenders have moved from 60 to 80+ within few months of AI platform implementation.
· Proactivity: Fintech companies are proactive in identifying and resolving customer issues. They use data analytics to monitor customer behavior and anticipate potential issues. They also provide proactive support through email campaigns, push notifications, and other communication channels. AI brings customer communications to the next level by evaluating for example the best day, time, message content, and format to best address the customer needs at the right time. With enough data captured, custom behavior models may be developed, evaluated, and added in strategies with a specific cut-off using AI analytics.
· Security: Fintech companies prioritize security and privacy when providing customer service. They ensure that customer data is secure and comply with industry regulations and data protection laws. They also communicate clearly with customers about their security and privacy policies. When leveraging vendors and partners, institutions need to make sure that their vendor management team conducts frequent due diligence. SOC2 compliance may close deals faster and improve security.
Innovate and adapt
Fintech leaders are constantly innovating and adapting to changes in the lending market. To be competitive, a lender would need to do the same, by staying up-to-date on the latest lending trends and offering new and innovative loan products to meet the changing needs of borrowers and investors.
Here are some strategies to innovate and adapt like a top fintech lender:
· Stay Up-to-Date with Emerging Trends: Fintech companies stay up-to-date with emerging trends in technology, finance, and customer behavior. They attend industry conferences, read industry publications, and network with industry peers to stay informed.
· Foster a Culture of Innovation: Fintech companies foster a culture of innovation that encourages experimentation and risk-taking. They encourage employees to share ideas, collaborate, and explore new technologies and business models. With AI cloud-based technology, institutions have a quick way, regardless of their tech stack, to vet new ideas, new vendors, new scores, and new attributes, and share results internally without having to take a leap of faith in future success. It also breaks silos of analytics across teams with uncertain combined effect outcomes and promotes result-based innovations.
· Collaborate with Partners: Fintech companies collaborate with partners to leverage their expertise and resources. Partners can include other fintech companies, financial institutions, technology providers, and startups. The key to success is to partner with the best institutions. On the vendor side, institutions are likely to be disappointed with performance as most of the vendors have no industry experience and don’t understand credit or lending business and regulatory requirements. Make sure to run your due diligence, to validate the institution’s experience and the products offered prior to the engagements. One simple way to save time and money is to use an independent AI cloud-based platform to proceed with testing as a proof of concept prior to committing to a partnership.
· Embrace New Technologies: Fintech companies embrace new technologies such as artificial intelligence (AI), machine learning (ML), and cloud computing. These technologies can help fintech companies improve efficiency, security, and customer experience.
· Focus on User Experience: Fintech companies focus on user experience and design products and services that are intuitive and user-friendly. They test products and services with real users and iterate based on feedback. Using AI helps institutions catch up with fintech companies and identify the key features that resonate the most with the users.
· Regulatory Compliance: Fintech companies stay up-to-date with regulatory changes and comply with industry regulations and data protection laws. They ensure that their products and services are fair, and secure and protect customer data. Using AI tools to compete in lending is a risky business as most vendors on the market are not offering solutions with embedded testing, validation, and reporting of lending regulatory requirements. The AI machine needs to be trained by humans with lending expertise. Successful Financial Institutions include a compliance review step in their due diligence before partnering with outside vendors.
Congratulations! You Know Now How To Beat Top Fintech Lenders with AI in 5 steps
To summarize, we highlighted the 5 steps to digital lending success and shared detailed strategies to implement them:
- Offer a seamless digital experience
- Use data and technology to streamline underwriting
- Offer competitive pricing
- Provide excellent customer service
- Innovate and adapt
The use of AI-powered strategies has improved the accuracy and efficiency of lending processes, resulting in faster loan approvals and better customer experiences. The ability of AI to analyze vast amounts of data in real time has also enabled top Fintech lenders to make more informed decisions. When trained and equipped with regulatory compliance controls, it also reduces the risks associated with lending.
Today, any new or traditional lender can compete in digital lending and beat top fintech lenders by integrating AI in lending strategies using AI cloud-based platforms agnostic to their internal tech stack.
Overall, the integration of lending strategies from AI with embedded regulatory compliance controls is a positive development that is driving innovation in the lending industry. It has transformed the way lenders make decisions and has improved the efficiency and accuracy of lending processes. As technology continues to advance, the use of AI-powered lending strategies will become even more critical for lenders looking to stay competitive in the market.
Implement The 5 Steps Instantly With Prometics AI
Now that you know how AI in lending provides a fast track to competitive advantage and lending success. Request a free consultation today! No matter what your internal tech stack is, you can instantly beat top fintech lenders by creating, deploying, and monitoring competitive and regulatory-compliant AI-powered lending strategies. Few use-case examples: frictionless digital lending, advanced and automated underwriting, risk-based pricing, fraud prevention, preapproved cross-sell marketing, and personalized lending all in one place. Competing with top fintech lenders has never been easier.
Prometics Lending NavigatorTM is the first AI cloud-based software to deliver the roadmap to lending success across all your lending activities. It uses Artificial Intelligence to provide advanced and compliant lending strategies and forecasting within minutes instead of months, increasing revenue, and reducing costs while staying compliant. Prometics was created by financial professionals for the financial industry to provide faster, better, and easier credit access, business growth, and resiliency in today’s and future-changing markets. We’re setting the new industry standard for lenders, investment portfolio managers, business advisory firms, and technology providers alike.
To learn more please visit www.prometics.com.