3 Tips to turn a head-on contest with fin-techs to your advantage
An announcement from SoLo Funds, a fin-tech company that operates a digital peer-to-peer lending service, could serve as both a warning and an opportunity for traditional banking institutions.
SoLo praised the recent dismissal of a Consumer Financial Protection Bureau lawsuit claiming its fixed fee structure essentially functioned as interest, which could potentially put the lender in violation of state usury laws.
SoLo’s (and other similar digital P2P lenders’) refined digital model means P2P lending shouldn’t be dismissed as a mere niche trend.
Community banks, credit unions, and large regional and national banks needn’t feel threatened. If they adapt, they can thrive! Here are 3 steps traditional banks can take now to adjust to a new banking alternative.
1…Lean on Existing Strengths: Different and Better! Traditional banks have the infrastructure, regulatory experience, and customer trust that can give them an advantage if they tailor their offerings to the segments they desire most. That may not be the customer P2P lenders typically target. Instead by developing transparent, user-friendly products, traditional banks can tap into previously un-served markets, many of whom may already be your customers.
2…Innovate – Don’t Imitate: The more sophisticated modern-day version of P2P lending could be seen as a wake-up call for traditional banks to innovate. But following is not for everyone; and certainly not point for point. Innovate, thinking of the customers you desire most. This approach enhances penetration and relationships with high-value market segments AND defends against the appeals of P2P lenders and other competitors. Innovation might also take the form of methods to deepen your understanding of potential segments so that you can accurately target those most able to deliver sustainable profit.
3…Seek Complementary Opportunities: Instead of a zero-sum game, traditional banks might explore partnerships or hybrid models that integrate fin-tech innovations into the bank product mix.
Our High-Level Takeaway
We believe that the dismissal of this lawsuit is a strategic win for P2P fin-techs as a category. For financial services companies as a whole, this development highlights the benefits of transparent pricing and regulatory compliance. It serves as a reminder that simplicity in product design can create meaningful competitive differentiation and foster long-term customer loyalty.
Profitability of a segment is optimized when the products and customer experience are guided strategically with understanding of the customer segment and its characteristics. This opportunity is ever-present, now there’s yet another reason to take advantage of it.
We encourage lending institutions to consider how these trends might inform strategic initiatives going forward.