Digital lending models are empowering organizations to adopt more flexible, responsive operations, allowing them to open up new service models. This is particularly evident in the lease-to-own market, where the rise of marketplace lending methodologies is combining with risk analytics functionality to allow firms to reach a wider range of audiences.
For example, American Banker reported that one non-bank lender was able to secure $100 million in revolving credit from a major bank in order to support lease-to-own financing at the point of sale. The system will process a sale, use analytics to assess client credit quickly and provide an almost instant lease-to-own offer for borrowers. The solution is in use across 10,000 merchants and approves approximately 80 percent of customers who would generally not be given credit by a traditional bank.
“Risk analytics are changing how firms handle credit decisions.”
These types of services emphasize how digital lending platforms are opening up new opportunities for profitable credit offerings that are still properly evaluated from a risk perspective. Analytics are the key to making this possible.
Analytics underpin emerging lending models
Risk analytics are changing how firms handle credit decisions in a few vital ways by opening up new avenues for information. For example, individuals with minimal credit histories would be too much of a risk for many banks offering a loan. However, marketplace lenders using risk analytics have begun delving deeper into personal data histories, tracking down the underlying traits of people who handle loans well and identifying data points for those with limited or poor credit histories. This is transforming the lease-to-own market because risk analytics platforms can:
- Analyze huge quantities of data quickly, allowing for rapid, almost entirely automated decision-making.
- Combine a variety of scorecard variables to create an optimal assessment relative to the borrower’s profile.
- Leverage unstructured data formats to inform choices.
These capabilities are turning the financial services sector on its head, and they create a variety of opportunities for banks.
How banks can deal with the rise of lease-to-own models
Fintech startups specializing in lease-to-own service models may have a head start, but traditional financial services firms have an opportunity to catch up. For example, partnering with startups can enable banks to take advantage of the lending model without having to create their own digital lending divisions. While this can be a quick way to enter the market, firms that embrace risk analytics can also start to roll out their own services to not only compete in the lease-to-own marketplace, but also expand to other digital lending services.
McKinsey pointed out just how valuable this can be, reporting that modern risk analytics enable banks to increase revenues from loan interest, reduce operational costs and minimize expenses associated with risk.
This vision for risk analytics is exciting, and GDS Link can help your firm get there. Our analytics platform is built to support modern digital lending models and make advanced technical functionality accessible and easy to use. Furthermore, our services cover a wide range of lending needs, including decision engines, credit scorecards and dedicated analytics tools. Contact us today to learn more.