Lending as a service is one of the latest trends of embedded finance and Fintech as a whole. This market sector is anticipated to double in the US and UK by the end of 2024, according to LendIt. Such streamlined growth is driven by the dramatic benefits for banks and non-bank lenders.
By replacing legacy applications with a natively digital LaaS platform and realigning business processes, loan approval can be completed in minutes, with funds disbursed within hours. LaaS impact studies have found that key costs of of acquiring and servicing loans can be reduced by up to 80 percent. All this shows that LaaS is a prospective sector to bet on in 2021. The following are some of the market gaps that exist in this niche.
Growth gaps to fill in 2021
We dived deeply into the reasons this sector has grown at a rapid pace and came up with a short list of the top gaps to fill during 2021 to gain the upper hand.
Integrations with banks
The main clients of LaaS platforms are banks. Because of the opportunities they provide to various client segments, private creditors, credit unions, and banks are considering LaaS integration more and more closely.
For instance, according to CB Insights, banking-as-as-service (BaaS) platform Mambu partnered with Fintech and bank infrastructure provider Alchemy to build a lending decision engine that will enable community banks and credit unions to deliver new loan products to the market faster. Banks and credit unions can leverage Alchemy’s front-end lending solution and Mambu’s back-end processing solution to offer new lending products to both consumers and SMBs.
There are also solutions to simplify integration with open banking. For example, Connect Flow allows lenders to connect to open banking. When clients connect their bank accounts via Connect Flow, it instantly collects and analyzes verified transaction data and then gives them a complete history and characterization of the payer.
Open banking integrations smooth the way to a wide range of clients and provide necessary customer data to check clients before giving them loans. The truth is that banks vary tremendously when it comes to infrastructure and needs, so it’s hardly surprising that an out-of-the-box LaaS solution rarely fits well. Those companies that offer a small number of suppliers (e.g., only one credit risk analysis partner) for the entire lending cycle will have fewer banks as clients. So integrations are a huge growth point for LaaS platforms.
Upstart went further and came up with its credit decision API, an artificial intelligence-based credit scoring solution. This API can be integrated with other lending platforms, providing other market players with accurate and quick decision-making on loans; otherwise, you will need build your own open API or reengineer the existing one to share your platform capabilities and data with partners. Integrating APIs such as the one by Upstart enables expansion into other market niches such as personal loans, auto loans, private student loans, and B2B loans.