Digital banking is not new. ATMs and cards were the green shoots of digital banking that emerged in the 1960s. Then in 1994, Microsoft introduced Microsoft Money, a personal finance management tool, that laid the foundations of online banking, so to speak. In fact, the first digital-only banks were founded in 1997 and 1998 in Canada (Tangerine) and the USA (First Internet Bank) respectively. 

Faster internet connectivity meant a deeper proliferation of digital banking. An estimated 203 million people use digital banking services as of 2022, which is projected to reach 216.8 million by 2025. 

However, a digital bank is not just the result of a functional website or an app. It’s more than that.

In this blog, we write about five fundamental aspects that make for a winning strategy for lenders that want to be digital-first. 

At its core, steady digital growth requires lenders to establish a strong foundation .  In a highly competitive, transparent market, inferior products get rapidly discarded in favour of the very best. Lenders that invest in the necessary infrastructure for delivering better quality, consistent customer experience can differentiate themselves from the competition. The infrastructure layer is a business-critical competitive imperative. Think of it as data aggregators, but with a layer of intelligence that gives lenders the ability to build custom workflows, and automation, and quickly adapt custom logic to enable businesses to respond to changing environments and thrive with flexible decisioning models. Lending infrastructure or the lending technology stack is an ecosystem of tools and services that enable today’s nimble lenders to handle everything from originations, to decisioning, and servicing. The key difference between now and then? The lending tech stack now enables agility, speed and reliability without having to bring on the finance and technology teams that developing these functions traditionally required. 

Partnerships can significantly reduce loan origination costs for lenders. Partnerships come in the form of anchor platforms, multiple data sources and fintech partners.  Weak integration with anchor platforms, data sources and various channel partners means a break in the user journey that might cause alarming drop-off rates. Integration with lenders’ fintech partners means robust infrastructure that easily adapts to any loan management system (LMS), and an in-house LMS that ensures high-velocity products like BNPL run smoothly.  Most importantly, ensuring that data is accurately and seamlessly transferred between the loan management system and other systems used by the lenders is a critical aspect of the integration process. A partnership-friendly stack then means solid integrations across systems. 

Banks sit on petabytes of data -this internal data can be used effectively for its own operations by adding new analytics capabilities. Most banks have a rich set of exclusive information on their customers (key demographic details, where they live, and their lifestyle preferences). When used responsibly, with respect to regulatory constraints and privacy concerns, this bank data can be analyzed for intelligent borrower segmentation , risk-based pricing , dynamic pricing, setting user-specific credit limits and creating new opportunities for cross-selling and up-selling. 

Some of the largest digital businesses, think Amazon and Alibaba, provide a crucial lesson for banks - a supermarket of curated and vetted mix of internal and third-party offerings; a single, integrated channel for customers to access lending products, educational resources, tools and a community of advisors. A Mckinsey report reveals that a marketplace model allows banks to unleash the power of high returns - annual return on equity (RoE) for providing credit from bank balance sheets is only 6%, while RoE for product origination/sales is 22%! 

Data plays a pivotal role in building a marketplace that nourishes customer relationships - by relying on recommendation engines that use transaction merchants, and customer data generated from the platform to provide personalised suggestions and offers. This creates a concierge-style service that reduces the risk of disintermediation. 

Most importantly, a financial marketplace is built on flexible infrastructure that is reliable enough to let developers build and buy new products. Without disturbing existing operations. 

The core job of lenders is credit decisioning,  not managing technology. However, when everyday functions are becoming tech-first, it gets hard to separate the roles of software builders and credit experts. Take a business rule engine, for instance - the ultimate decision maker should be the credit expert; the engineer’s role? Building a dynamic business rules engine that isn’t hard-coded, so the credit expert can adjust rules by clicking two or three buttons. Bottom line: Engineering should focus on making operations seamless through innovation, not through day-to-day functioning.

At FinBox, we understand that a lender’s core strength is in its underwriting model and not in maintaining data connections and increasingly complex workflows between interfaces. Our robust infrastructure deepens product customization, faster scaling, and rapid prototyping, which otherwise remain locked in legacy systems.  Modular architecture represents a promising approach for lenders looking to modernize and streamline their operations. By breaking down complex systems into smaller, more agile modules, lenders can improve efficiency, reduce risk, and increase scalability.  

In other words, digital-proof your lending operations with FinBox. Get in touch with us today!