President’s Perspective | Lending-as-a-Service and Decisioning-as-a-Service
Lending as a Service Platform
As the Marketplace Lending environment continues to evolve, one area of opportunity that continues to gain traction is the cloud based Lending-as-a-Service (LaaS) model. Many online lending platforms continue to seek partnerships with traditional lending institutions. Through a branded or white label approach, the LaaS model allows credit unions and traditional banks to leapfrog into the digital age. These platforms financial institutions to bypass internal technological hurdles and more rapidly meet the expectations of their customer base and prospects to transact digitally.
For traditional banks and credit unions the LaaS model can offer a way to test the online lending paradigm without making the large capital outlay that would be required to build the required platform internally. By partnering with LaaS platform providers financial institutions are able to implement the credit policies and scorecard models that have been developed by their risk teams, not those of the platform provider. Additionally, they are able to establish how their clients will be serviced on an on-going basis. Lastly, they are able to pick and choose what servicing they want to turn over to the LaaS provider and what they want to keep in house, which can include aspects of the sales and marketing activities.
Once these financial institutions have sufficient experience in the online lending environment they may choose to retain their relationship with the LaaS provider or they may wish to bring the solution in house by building it internally or bringing together best in class third party offerings in support of loan underwriting and servicing. With large investments in legacy technology financial institutions may decide to secure the latest underwriting and credit risk management components with a proven track record in working with LaaS platform providers while servicing the booked loan on its legacy platforms including loan servicing, customer service and collections.
LaaS platforms also provide an opportunity for retailers to more rapidly establish and implement a financing option to its large customer base as an option to the use of traditional bank cards or private label credit card programs. In this model the LaaS provider may not only deliver the technology and loan servicing but will also bring the funding component to the mix as well. The retailer, less a discount, receives immediate funding and the LaaS takes on the credit risk.
For retailers that deal with sub-prime consumers, thin or no file (underserved and /or underbanked), LaaS platform providers are typically well suited to assist in the credit risk assessment process by leveraging their experience in the use of alternative or non-traditional data as well as the use of more advance modeling techniques such as machine learning. Leveraging these same capabilities, LaaS providers can help banks meet some of their CRA requirements by implementing prudent risk strategies that will support lending to non-prime consumers or business owners.
Decisioning as a Service Platform
Decisioning-as-a-Service (DaaS) is also gaining traction in the online lending arena. Under the DaaS model, banks, credit unions and other type of lenders will look to DaaS platforms to provide flexible and robust underwriting and risk analytic capabilities while they retain ownership of the underwriting personnel, establishment of risk polices and the ongoing servicing of the loan. The DaaS provider may take on certain aspects of the underwriting processes such as verification of ID and Income if it cannot be systematically determined. DaaS can be viewed as a sub-set of the services delivered under the LaaS model.
Whether adopting the LaaS or DaaS models, securing best in class third party software or building internally, or a mix of these approaches, it is clear that the ability to extend financing of all types to prospects and customers digitally is a strategy that all lenders need to adopt to be competitive.
To learn about GDS Link’s decision engine solutions and how our technology, DataView360®, can be leveraged in each of the deployment approaches discussed here please contact a GDS Link representative today at firstname.lastname@example.org.
About the Author: Paul Greenwood is President and Co-Founder of GDS Link. Paul is responsible for the company’s overall strategic planning and direction, which is centered on providing the technology for clients to accurately score the behavior patterns of the customer lifecycle. Greenwood oversees GDS Link’s business development, sales operations and marketing direction to ensure the delivery of customer-holistic risk management technologies. Greenwood has more than 14 years in the risk management industry, providing clients with the expertise and guidance to design, implement and manage their enterprise risk management platforms.