By Grant Mackenzie, CFO at Nimble
Few industries are in more urgent need of disruption than banking, an institution that for so long has been monopolised by the major banks. While the banks purport to be inclusive of the wider community they serve, the reality is they’re not. Anyone who doesn’t suit a narrow lending persona is alienated from accessing capital. The way people live, work and play is changing, and as it does, so too must the industry that exists to support them.
There are shoots of optimism. Technology-empowered fintech’s and alternative lenders are ushering in a new era of innovation, accessibility and financial empowerment. Meanwhile, policy makers have acknowledged that credit laws need a shake up to encourage faster, easier and fairer access to loans. But for the industry to truly serve everyday Australians, banks must come to the table.
It’s time to stop penalising good customers
There are large pools of customers that have been underserved by banks because they have bad credit ratings but are in fact suitable customers. Banks typically take a narrow view of customer segments, not catering to those who fall outside the ‘long-term career, marriage, family home, two children and a pet’ profile.
Banks take a more aggregated approach that doesn’t reflect the way people live or require capital today. The reality is that many customers in today’s environment change jobs more frequently, rent their homes, have the occasional late payment blip and require a more nuanced approach to assessing credit risk. No two customers are the same; each must be assessed on their own merits.
It’s imperative for some customers to access quick capital to meet needs – rather than wants – such as car repairs, medical emergencies, or back-to-school supplies. As a result of the pandemic, many Australian households have less to spend on essential goods, never mind an unexpected bill. Research from Nimble found that more than one in four (27%) Australians would not be able to pay an unexpected bill of $1,000, 51% have struggled to pay bills or other financial obligations and 34% do not have an emergency fund for a rainy day.
Unless they meet very stringent lending criteria, customers are prevented from accessing what are often essential funds. Long, laborious approvals processes that ultimately end in rejection don’t cater to Australians today or reflect their need for flexibility and speed.
To better serve them, banks must work with, not against, alternative lenders.
A responsible, collaborative, tech-empowered solution
Through a collaborative approach, leveraging cutting-edge technology, the industry can provide quicker and fairer access to capital without compromising responsibility. Artificial intelligence and Machine Learning are liberating the assessment processes, enabling challengers such as Nimble to own the credit decision-making space and provide responsible lending products at fair prices with almost instantaneous decisions.
However, alternative lenders are being locked out of access to cheaper funding by the major banks which prevents them from lowering the cost of capital. Banks have been protectionist in their behaviors and need to make it easier for authorised third parties to securely access customer data.
Open banking, a major innovation with the potential to reshape the industry, is a necessary inevitability. It allows financial institutions to develop more holistic, sophisticated views of each customer and provide the products and services that suit them. Open banking will push established banks to be more competitive with alternative lenders, ideally lowering costs and improving technology. The value is felt where it’s supposed to be felt: by the customer.
The simple fact is that banks have become too risk-averse when it comes to lending. That’s not to say every applicant should be provided funds with no questions asked, but through technology, advanced and nuanced decisions can now be made in a matter of seconds. When speed and responsibility are merged, and the results are assessed through a nuanced lens, the loan empowers the recipient without risking financial hardship down the line.
This is a system that provides loans that help everyday Australians, whether they’re to overcome challenges like medical emergencies, or bring their dreams to life, like a wedding. Policy makers have acknowledged the need for a more contemporary approach and fintech disruptors are setting new standards for innovation and fair, flexible and responsible access to capital. But to become the industry that it’s capable of, and the industry Australians need, banks must be a willing part of the revolution.
Grant Mackenzie is the CFO at Australian lender, Nimble. Nimble holds an Australian Credit License and is one of the long-standing credit providers in the unsecured consumer credit sector, having funded over 1.6 million loans to customers all over Australia since it commenced operations 15 years ago.
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