7 Trends That Will Change Lending in 2018

Cole Harmonson

A version of this article will publish in the Commercial Factor newsletter in January 2018. This version has been modified for publishing on our blog.

1: Fintech fragmentation starts moving toward a winner who can remove uncertainty.

There’s so much fragmentation in the world of what we do. Every single person gets paid to sweat the details of uncertainty; someone who can remove uncertainty stands to make a lot of money.

In particular, blockchain technology may be able to remove uncertainty around the value of any given asset.

“Blockchain technology will help to eliminate fraud by giving each individual a unique ID.”

Chad Otar, Excel Capital

2: Managing a portfolio will get easier as technology and algorithms can help you spot big problems.

We’re expecting more and more B2B transactions to be managed by algorithms – where technology can spot problems and show us where we need to focus our attention. It will never take away our need for human oversight – but it will give us better efficiency.

That technology should get significantly better in 2018. I don’t think it’s gonna come from the big players. We’re working on tweaking our own exception model that sits on top of our application software.  If you’re also thinking about this, be sure to review what the Jack Henry, Inc. folks have to say about it.

There are 28 million small businesses in the United States with 200 billion worth of commercial receivables that we’re all out there fighting over.  All of it is essentially being financed in an old school manner right now. We get paid to sweat the details, which we will always have to do, but in theory it should get easier and easier to sort out issues.

“Leading financial services groups such as BBVA, Intesa Sanpaolo, and Lloyds Banking Group are already spending hundreds of millions on digital business transformation; Bank of America also intends to spend $3 billion annually for new software development alone.” Forrester

“Lenders will continue to incorporate more data into their sales, underwriting and portfolio management processes, and their decision making. Advances in technology, availability of data, and a customer requirement that lenders deliver services that are convenient and easily accessible will continue to drive this trend. Borrowers are willing to share more data, or allow lenders access to it, in exchange for speed and simplicity.”

Linda McDonough, communications & marketing executive at 50 Words, LLC

3: Marketing evolves: 2018 marketing efforts will get cheaper as targeting gets easier, but more difficult as ad blockers and advertising distrust grows.

In 2018, many B2B businesses – and lenders – will move to building longterm relationships (aka customer experience) instead of acquiring more leads; pay attention to churn rate to monitor the longterm health of your marketing and brand.

It will also help to get more personal, more human, in our marketing.

“Social media convergence continues to blur lines between personal and professional lives at an astounding pace. The single biggest professional response I’ve received in years came from a silly LinkedIn post about Veritas’s Halloween costumes. 6 months ago, I would have considered the post unprofessional and stupid.”

Mark Seigel, Veritas Financial

4: More power moves to the consumer or client, with a growing amount of reviews & data available about their decisions.

In 2016, we began asking our clients to leave reviews on TrustPilot, which acts like a Yelp for B2B businesses. More and more clients are looking to sites like that for unbiased reviews of a potential vendor; your Google reviews, Facebook reviews, and score on sites like TrustPilot will become more important not only to validate your brand but for consumer discovery. If someone searches TrustPilot for the highest rated factoring firm, we want to win that search.

“Empowered customers are wreaking havoc on markets, changing the rules and destroying once-sturdy business models. Power has shifted away from institutions to customers.”-  Forrester

5: Big players continue to push into the lending business; some upstarts may experience business model pivots.

With a growing population of freelancers, contract workers, and small businesses that rely on invoicing, it’s inevitable that behemoths like Amazon and PayPal would explore lending at scale – as they have been quietly doing.

It’s also likely that companies like OnDeck, Inc. may have to pull back or rethink lending models when high default rates no longer become acceptable to investors. If there is any disruption in asset values, there will be a major test of many “fintech” working capital lenders who don’t focus on collateral performance.

6: More and more records get digitized, even in industries that have resisted it.

Hopefully, this makes our jobs easier; in businesses like fuel distribution, record-keeping is still primarily done in spreadsheets not connected to software. As that changes, it will get easier to spot problems and systemic issues that underwriters may have missed before.

7: Personal contact with customers and clients becomes a premium service as more and more services move to digital.

According to Forrester, “organizations will not see half of their customers, members or clients in 2018.

Contextual engagement will become a source of differentiation, with the impact of automation and the ability to integrate digital and human interaction becoming a consumer expectation.”

They’re not the only ones who expect deep customer relationships to become an even better value proposition.

“Lenders will need to become more deeply connected to their borrowers than they have previously. Those who can simplify the offer, optimize their position in the value proposition, focus on areas of innovation and put culture to work for them will be much more valuable than they are today.”

– Vince Mancuso, NextEdge Capital

For us, this has always been a differentiator, but it’s become much more important in the fintech world. We call what we do “fintouch” – it started as a joke, but became a serious philosophy that we now apply to our longterm planning, both in technology innovation and in our staffing decisions.

Cole Harmonson is the CEO of Far West Capital, a company that funds the goals of high-growth entrepreneurs. Know a great company in need of capital to unleash their potential? Send them here, and we’ll give them a call.

 

 

 

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