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Robo Advice: will it really change the lending market?

Robo advice: more than just automating product optimization

After 20 years in boards of Mobile Telecom Operators, Retail Banks and FinTech companies, I’ve learned that customers want more than just on optimized set of products. They are looking for superior customer experiences that fulfil basic expectations while providing value. Traditional institutions however often lack vision and digital guts to overgrow their poor non-engaging customer experiences. For the past 6 years as a FinTech entrepreneur and doing a PhD on robo advice, I learned to deeply understand and apply the disrupting power of technologies to develop these superior customer experiences that really improve the lives of my customers.

Disrupting technologies usually find their way to markets which are operating inefficiently. Mobile phones improved our personal efficiency. Companies like Amazon and Alibaba improved our shopping efficiency. Google for sure improved our search efficiency. And thousands of FinTech-companies are currently bringing more and more efficiency to our financial lives.

Some insights from Robo advice PhD research

Robo-advice is such a disruptive technology with the potential of bringing extreme efficiencies to our lives. In my scientific paper “Explaining the customer experience of digital financial advice” I define robo advisors as “online advice platforms that provide advice by complex computer algorithms”. In this study we also developed the Digital-Customer-Experience-Index (DCX) to objectively measure, compare and improve digital and robo-service experiences. In a world that is plagued by low trust in financial institutions, robo advisors’ efficiencies can potentially restore trust in financial institutions as a result of their immense objective calculation and mathematical power. AdviceRobos’ innovative artificial intelligent scoring of underserved customer segments like millenials, self-employed and SME’s is an appealing example of this mathematical power that will financially include billions of people globally.

But the DCX also shows that robo-advisors have the opportunity to bring much more than only efficiencies. Robo advisors’ strong ability to fundamentally improve customer engagement really excites me.  By combining their complex computer algorithms, big data applications and gamified instant customer experiences robo-advisors can guide us personally as virtual assistants in improving our financial lives. Billions of people globally can, in the upcoming years, be supported to improve their financial wellbeing. The traditional financial advisor for the few will be more and more supported and maybe even replaced by the super engaging personal assistant for the many.

The view of the market: Rise of the lending robo research

In our global behavioural science research to the impact of artificial intelligent robo-advice, up till now we missed the view of the lenders. That’s why we did this research with Finextra. This research is the first to provide insight in the current state of corporate-thinking towards advice robos for lending. The research provides us with some remarkable new insights.

56% of the lenders thinks inadequate lending causes the current credit problems in the market. Inadequate lending is lending without proper credit risk assessment. Also interesting to see is that 70% of them sees credit scoring as the most time consuming and frustrating process for underserved customer groups like SME’s. So there truly seems to be a huge problem to solve.

On the side of the solution for better and responsible lending, 75% values big-data applications as beneficial for better risk assessments. 83% of the lenders sees advice robos that apply machine learning based scoring as a major help in proper risk assessments. But only 50% of them currently believes in the power of virtual assisting for this. In terms of applicability sees 64% of the respondents’ benefits of robo-advice across all sizes of lending companies.

Certainly, the lenders see also serious hurdles to overcome. 84% of them trusts people and experience currently more than artificial intelligence.  82% finds their own data-quality the biggest threshold while 76% values the lack of industry expertise on artificial intelligence as a serious hurdle. Final hurdle is the lack of clarity from the regulators on applications of unstructured data and machine learning.

No guts, no digital glory!

In our book “Riding the waves, banking in 2020” we draw the picture of a post app banking world in which super personalized customer experiences will be the most important key success factor. New market and business models will enable this. The University of Oxford indeed places financial advisors on their top 5 list of jobs robots are already taking. The PhD-research shows that robo advice is about delivering superior customer experiences. The Finextra research shows that the only half of the lending industry itself yet also sees this. The lenders currently seem to worry more about the hurdles to overcome like their data-quality, lack of knowledge on alternative lending, machine learning and regulation. Short term operational issues seem to push away realizing concepts that improve the lives of the customers and seriously reduce cost/income. The brave lenders do however apply robo-technologies to offer automated highly personalized contextual digital lending services at cost income ratios between 30% and 40%. In short, the general perception is that robo-advice can offer huge benefits to all lenders in improving their competitive power. It offers serious efficiencies and personally engage customers over a long period. Our challenge to the lending community would be: Conquer the short term operational focus and make a big leap into robotics to create a sustainable competitive advantage! No guts, no digital glory!


Diederick van Thiel



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