Global contacts

Bob Contri Global Leader, Financial Services Deloitte Touche Tohmatsu Limited [email protected]

Rob Galaski Deloitte Leader for the Forum Future of FSI Project Deloitte Canada [email protected]

Anna Celner Global Banking & Securities Leader Deloitte Touche Tohmatsu Limited [email protected]

View the full report Beyond Fintech www.deloitte.com/beyondfintech. Disruptive innovation in lending

© 2017. For information, contact Deloitte Touche Tohmatsu Limited. Background Open questions

A 2017 report from Deloitte and the World Economic Forum, “Beyond Fintech: A pragmatic assessment of disruptive How will new analytical techniques Will platform-based lending become a potential in financial services,” examines disruptive innovation in financial services. and data sources make relevant distribution channel? underwriting more effective? The report identifies8 key forces impacting all aspects of financial services:

Cost Commoditization: Financial Profit Redistribution: Technology What is the long-term impact of institutions will accelerate the and new partnerships will enable marketplace lenders licensing their commoditization of their cost bases, organizations to bypass traditional underwriting technology? removing them as points of competition and value chains, thereby redistributing creating new grounds for differentiation profit pools

Will marketplace lenders provide How will the borrower’s direct lending? Experience Ownership: Power will Platforms Rising: Platforms that offer preference of distribution transfer to the owner of the customer the ability to engage with different channels continue to evolve? interface; pure manufacturers must financial institutions from a single therefore become hyper-scaled or hyper- channel will become the dominant model focused for the delivery of financial services Possible futures

Data Monetization: Data will Bionic Workforce: As the ability of become increasingly important for machines to replicate the behaviors of Clients will benefit from a fragmenting differentiation, but static data sets humans continues to evolve, financial Different Marketplace lenders must develop more lending environment thanks to greater will be enriched by flows of data from institutions will need to manage labor evolutionary sophisticated capabilities or compete on competition and sophisticated niche multiple sources combined and used and capital as a single set of capabilities paths price with established banks. in real time lending.

Systemically Important Techs: Financial Financial Regionalization: Diverging The desire for cost-commoditization Outsourcing will improve industry cost institutions increasingly resemble, and are regulatory priorities and customer needs Shared service drives growth in B2B service providers, as structures, but also create new sources of dependent on, large tech firms to acquire will lead financial services in different providers critical infrastructure and differentiating regions of the world down distinct paths two needs come together in one solution. risk. technologies

To learn more, visit www.deloitte.com/beyondfintech. Here are some of the key findings for the lending segment. As partnerships between banks and Non-financial firms move into financial non-financial firms proliferate, customers Distribution 2.0 services and disintermediate the Trends will enjoy more choices and a better traditional broker channel. experience.

New adjudication techniques have significantly expanded access to credit among underbanked, "thin-file," and subprime customers. Key takeways

The lowest funding costs win: Despite their innovations in origination and adjudication, online lenders have limited ability to Where Individual and small-business borrowers expect their lenders to deliver the seamless digital compete with banks due to high and unstable funding costs. This will drive online lenders to acquire banking licenses – unless disruption has origination and rapid adjudication that financial technology (fintech) companies pioneered. occurred alternative funding becomes available.

Lending goes digital: Marketplace lenders and technology firms have reoriented customers. In the future, customers will Non-financial platforms are emerging as an important source of underwriting data and a point expect a frictionless application experience and a swift response. of distribution for credit. Lenders use data effectively: Leading lenders use new data sources to underwrite applications whose risks they couldn’t assess before (e.g. thin-file customers). They also reduce underwriting Where it Funding economics put marketplace lenders at a cost disadvantage compared to traditional costs by automating the collection and analysis of key data (e.g. using data gathered directly from hasn’t banks, raising questions about the model's sustainability. a small business accounting platform). Moving forward, lenders will look for more ways that data can inform lending decisions.