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Virtual Card Technology is Powering a Lending Revolution

In the last decade, the lending industry has grown and diversified massively. New business models have evolved, and alternative lenders have entered the market creating competition in a space previously dominated by traditional banks.

This change has been in part due to quickly evolving technology and sweeping digitalisation, but the aftermath of the 2008 financial crisis was undoubtedly a sea change for the lending industry. The credit squeeze that followed the crash opened the door to new lending models that could generate new credit options for borrowers who were at that time forced to seek alternative sources of credit.

In the last decade, customer expectations have continued to grow in tandem with technological advancements and, while customers appreciate having a choice of finance options that they didn’t have before, they also now expect rapid service and a seamless customer experience. The proliferation of mobile technology has placed greater emphasis on immediacy, with customers expecting shorter and more convenient credit journeys that can be completed within minutes from their mobile device.

In spite of this, the ability to issue funds quickly remains a major pain point for many lenders. In point-of-sale lending, for example, retailers may be able to offer finance to customers, but the user journey is often lengthy and complicated. Customers may be required to fill out various forms which need processing before the credit is issued. Bank transferred funds can take days to appear in a customer’s account before they can access the money. 

With the new capability to offer a virtualised card via a mobile device, lenders can bring new customers on board quicker than before. The ubiquity of mobile is allowing lenders to issue a virtual card with the provisioned funds, which can be tokenized and added to a virtual wallet seamlessly. In practice, this means that customers could visit a retailer, find the goods they want and apply for credit that can be instantly issued, allowing them to make a purchase within minutes, not days. In this scenario, the retailer wouldn’t even need to know the customer has received financing from an external company and the customer wouldn’t be issued an additional physical card that they may not want or need.

This entire process renders the ‘last mile’ of extending funds to a borrower seamless and the key to this is that it can happen within minutes. Whilst this lending model improves the end-user experience tenfold, it also presents a number of benefits for lenders themselves.

One significant benefit is access to data. The process of issuing credit has typically involved loans being dispensed directly into the customer’s bank account. Once the money is sent, lenders then have no oversight of how or where the money is used and if the money has been spent where it was intended to be. Without this information, lenders are unable to garner a strong understanding of who their customer is and what their spending habits are and make informed decisions about issuing credit to them in the future.

By providing customers with a virtual card, lenders can now have access to valuable data about their customers spending behaviour, including exactly how and where customers spend money. With access to a greater wealth of information than has previously been accessible, lenders can derive important insights into customer behaviour and form more accurate risk profiles, allowing them to make informed decisions about renewing and extending additional credit and pricing for future loans.

When paired with a customer-centric approach, these data insights will allow lenders to improve credit journeys for customers and retain business in what is becoming an increasingly competitive market. Not only does virtual card technology have the potential to improve the credit market for customers as a whole, but it can also provide lenders with the tools they need to continually adjust and grow in a rapidly evolving marketplace.

 

 

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Ian Johnson

Ian Johnson

Head of Europe

Marqeta

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22 Jul

Location

London

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This post is from a series of posts in the group:

Analytics in Banking

This is for discussion and sharing of views on trends, practices and views in analytics in banking and financial industry


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