The COVID-19 pandemic-driven economic shutdown of 2020 exposed the limited lending capabilities of banks and credit unions. As we diverge from the traditional “norm” and into a new post-pandemic lending structure, institutions must look for more efficient means of providing loans and extending credit. This new model includes the need for enhanced white label consumer lending services. Here we’ll explore the benefits of white label consumer lending for banks and credit unions.
How 2020 Transformed Lending
Job slashes and a nationwide “shelter in place” order meant that many people needed money fast – with both loan and extended credit approvals happening exclusively online. This unforeseen rise in online lending activity caught banks and credit unions by surprise.
As a result, many financial institutions were ill-equipped to handle consumer demand. Their shortcomings were due in large part to the following:
- Banks and credit unions were not yet leveraging point-point-sale (POS) lending solutions. They still relied on obsolete lending processes that did not offer adaptability or scalability in a rapidly changing lending environment.
- As a result, they could not keep pace with demand and lost valuable ground to competitors better positioned in the digital lending space.
- Fintech companies active in POS lending effectively stole many customers in need of cash, successfully redirecting billions in revenue away from banks and credit unions.
Many financial institutions continue to ignore this vastly growing trend and fail to respond with any sense of urgency. As a result, the gap between POS-capable fintech companies and tech-challenged banks and credit unions continues to widen.
Those that continue to underestimate the threat may see a continued loss in market shares as POS systems become more and more commonplace in an increasingly tech-heavy industry.
What is White Label Consumer Lending?
White label consumer lending is when a financial institution – such as a bank or credit union – extends credit or offers a loan to a consumer via a third-party, brand name intermediary.
For example, when consumers shop online or at a physical store location, they may apply for a store credit card or a similar buy now, pay later (BNPL) product. That product will then be sold under the store’s brand name but be underwritten by a separate financial institution.
What is a White Label Lending Platform?
A white label lending platform allows retailers to customize a digital lending solution and brand it under their name.
As a result, these name brands can provide a seamless and cohesive purchasing process for their customers that minimizes delays and disruptions by eliminating the need to toggle between different URLs.
This cohesion reduces the required steps in the purchasing cycle (including exposure to different company names) that can induce customer confusion and distrust.
Four Benefits of White Label Consumer Lending
Today’s customers expect a quick and streamlined digital platform process. However, many banks and credit unions don’t have the time or expertise to build solutions that support an end-to-end application process.
Therefore, the question may not be whether to use a consumer lending platform but rather whether to build your own or purchase from a platform vendor.
The reasons why you might purchase an external lending platform include the following:
1. Lower labor costs
Building an internal lending platform is a substantial investment.
If you choose to tackle that endeavor in-house, you will need to hire a team of experts who can meet all the tasks required to build and sustain such a complex and robust platform.
These tasks might include (but are not limited to):
- Application development
- Bug testing
- Ongoing maintenance
- Customer support
These tasks divert time and focus from other objectives where you and your employees might better spend time selling your financial products and banking services. By outsourcing this project to an industry expert, you can reallocate and better use your employee resources.
2. Vendors Often Fix Issues Before You Notice Them
Technology is constantly evolving, and what worked for a customer yesterday might not suffice tomorrow.
Keeping up with customer demands requires improving your financial services by keeping pace with innovation and staying ahead of potential problems.
However, when running an internal platform and having limited POS lending experience, you will not necessarily anticipate scenarios that could produce problems. Instead, you might have to wait and experience the problem.
A vendor, on the other hand, services several banks and credit unions at one time. They likely have other clients further along in the white label lending process that has already experienced many of the same growing pains.
Having already stumbled upon those issues, the vendor has likely solved them before you even know they exist.
3. Get to the Market Faster
The more time you spend consumed by a prolonged, drawn-out building and testing process, the farther away you are from launching and marketing your platform. The benefits listed above, among others, will get you to markets faster.
4. Economies of Scale Might Provide for Cheap Solutions
Because third-party vendors often service many financial institutions, they can typically spread employee and technology costs amongst their customers. This cost-effective use of resources usually means paying a significantly lower rate than the cost to build the platform yourself.
Skeps: White-Labeling Consumer Lending Solutions
POS lending, and more specifically white label consumer lending, is becoming commonplace. Banks are undergoing a digital transition by using lending platforms to service both large and small enterprises.
Credit approvals that used to take days are now completed at the point of sale because of lending platforms that streamline the consumer experience.