The whitepaper, entitled ‘European Digital Lenders: How operating efficiency is helping digital lenders attack a $150bn annual origination market across the Eurozone in 2018’, looked into the state of the digital lending market in Europe. It found that while European digital lenders are growing quickly, digital share is still low relative to the addressable market opportunity. Efficient onboarding and servicing using digitised workflows, such as digital identity verification technology, are being used by both new entrants and incumbents to boost competitiveness—ensuring regulatory compliance, improving speed, and reducing the cost of customer onboarding.
“The digital lending sector has grown dramatically in the last few years and is a great example of how technology can democratise access to financial services. But banks still dominate lending, and digital-first lenders are struggling to provide loans on better terms than their traditional rivals given high cost of capital,” said Lex Sokolin, Global Director Fintech Strategy at Autonomous NEXT. On the state of the market, Lex adds: “Our report found that venture capital investment is still flowing into the space and is set to hit $800mn in Europe. The UK alone has originations of over $6bn, and Europe-wide, the addressable market is $150bn—with current digital lender revenues estimated at $400mn. Moreover, the market shows impressive originations growth, with a 60% CAGR since 2013.”
The report found that onboarding times have been drastically reduced in the digital world—from six weeks to a matter of minutes—but acquisition costs remain at $300 per customer. A KYC and AML check could cost as much as $150 per customer when fully loaded for bank cost. Additionally, the cost of their capital is preventing digital lenders from competing with incumbent banks on price – but this cost isn’t likely to be reduced anytime soon.
However, it’s not all doom and gloom: digital lenders should harness their lower operating costs to their advantage. Reducing costs is paramount if digital lenders are to offer a real alternative to traditional banking providers. Where digital lenders must also play catch up is with security—and digital identity verification has the potential to be the tool to make this happen.
“For digital lenders, mandatory KYC and AML checks are still largely manual, building delays and inefficiencies into the onboarding and vetting process,” said Rene Hendrikse, EMEA MD at Mitek. “The solution is investing in digital identity verification (IDV), powered by AI technologies, which provides an opportunity to massively enhance the efficiency of the onboarding process in terms of both speed and cost reduction. In fact, the report found that digital IDV solutions can help reduce KYC and AML costs by up to 70%—and could potentially improve the speed of these checks by 80%.”
“Fintechs and digital lenders in particular need to ward off inefficiency and drive the best possible customer experience,” adds Hendrikse. “Identity verification technology could give digital lenders the competitive edge they need, and may help them take market share away from traditional lenders.”