Welcome to another recap of Fintech Confidential’s Accrued podcast series. If you are interested in how AI and data accessibility are changing the game in finance, look no further than episode 14: Navigating the Future of Credit, Strategies for Modern Lending.
In this episode, Tedd Huff and Colton Pond welcome Raktim Mitra, the chief lending officer at Varo Bank. Drawing from experience in institutions like Carvana and Goldman Sachs, where he led the Apple Card science team, this seasoned executive brings a valuable perspective to banking. Tune in to hear how your company could benefit from a more tailored and personalized lending system.
You can stream the Accrued fintech podcast, (brought to you by LoanPro), in all the usual places.
Here’s what went down
The fintech experts focused their conversation on three main areas:
- It is the tech behind your bank that empowers growth in the industry.
- Creditors can alleviate the boundaries set by bad credit through using alternative data.
- Financial services are approaching a reality where personalization is vital to their survival.
The tech behind financial institutions
The average time to test and launch a new product on a traditional legacy core is 22 months. But modern tech stacks rapidly changing the industry by empowering lenders with competitive launch times. Instead of pushing an inadequate product on their consumers, businesses align with them first by launching a few pilot programs. Better yet, companies are utilizing machine learning AI to pseudo-test products before they go public. Big banks with traditional operations may be in business, but soon that business will no longer be sustainable.
While innovation rises, notably a surge of compliance has been quick to follow. Modern technology provides safeguards and streamlined company operations for ever-shifting regulations. Staying compliant with banking regulations like KYC and AML is crucial to maintain safety and trust. In their discussion, the fintech experts mention recent consent orders issued to institutions like Thread and Evolve Bank, stressing the importance of lending fundamentals. While innovation is important, lenders must not dilute the customer experience. Customers enduring hardship due to these consent orders is what motivates Raktim as a managing director to prioritize the customer.
Data and customer experience
Despite many innovations that improve the customer experience, significant pain points remain. It can be hard to make payments on high interest rate loans or come up with the investment for a mortgage on a tight income. And even in a world where same-day funding is possible, access to timely credit is out of reach of millions of Americans because of their credit history. Roughly 25-30% of Americans have subprime credit scores, with many lacking a credit file altogether.
But Raktim shares his secrets on how to tailor underwriting to this difficult space: Alternate credit data is cracking the traditional approach to the credit decisioning process. Alongside traditional credit history, underwriting can now consider transaction data, customer behavior, and payroll data. This alters a lender’s approach to credit applications, expanding their addressable market. Business strategies that leverage these advanced analytics will become more robust in their credit decisioning.
Personalization in financial services
Over the past decade, an increasing number of customers have demanded personalization from financial services, choosing creditors who offer not just lower rates but a product that aligns with their own financial needs, goals, and preferences. It is essential to be personal at every step of the lending process, from point of sale to everyday interactions. The key questions Raktim always asks are, “Is this the right thing for the customer?”, and “Am I setting the customer up for success?”. Lenders who make these considerations a deliberate part of their strategy and product are in a good position for the future. When done properly, business can achieve personalization without compromising efficiency or compliance.
While an exceptional experience is the goal, it is equally important to deliver a safe and legal product. In contrast to many opinions, Raktim shares how he believes regulation is not holding financial institutions back, but instead enables both lenders and customers to be successful. For example, the CFPB is pushing forward to authorize open banking. This would permit the ability to share customer permission data so that the customer can get a better product,supported and enabled through regulation. Moving forward, we can expect a continual evolution in the interplay between regulations, customer needs, and financial products.
Key takeaways
The enabling aspect of compliance
Unpopular opinion—regulation is not necessarily holding lenders back. Raktim explains how it helps deliver products that set customers and financial institutions up for success.
The modern credit decisioning process
Alternative data is a game-changer in the credit decisioning process. Different data types can improve lending accuracy in determining a borrower’s creditworthiness, expanding both the applicant’s access to credit and the creditors customer base.
Extending credit to underserved markets
Help people with poor credit scores by marrying intent with digital capability. Tailored underwriting for the borrower creates better services for everyone.
Modern tech for fast service
Technology allows lenders to offer quick and efficient services. Reduce costs and increase the likelihood borrowers will repay their loans when you integrate with a modern tech stack.
Innovation and a customer-first approach
Raktim discusses how AI and innovation are being developed with the borrower’s pain points in mind. This shifts market dynamics to be more personalized as opposed to an original P&L-first approach.
