Fintech February 3, 2022

Payments and Lending: Closing the gap

By: Sharif Mohamed

Traditionally lending and payments have always had some cross-over but outside of larger banks or finance houses they have generally remained separate – at its core the focus is on one or the other.

But these two distinct spaces are going through an evolution, slowly but surely merging to fill the gaps for end-users.

The fusion of these two areas has come about thanks to a multitude of factors:

  • Most of those who require lending will, at some level, be processing and collecting payments in some form
  • Thanks to a transition to more online/digital services and online marketplaces, businesses can suddenly reach more customers and buy from further afield to access better prices/new products
  • Open Banking means that lenders have greater access to accurate payments data for credit and risk assessment purposes
  • Lenders are beginning to expand offerings to deliver more of what borrowers need in one place to access and use their funds

So what does this mean in practice?

Lenders, or more specifically LendTechs, are fast evolving, using more granular data than ever and providing increasingly wider and better services to their customers. One important part of this is payments.

The ability to ‘own’ the customer’s transactional data allows for a huge increase in reliability and visibility when it comes to making decisions. This has been seen with the launch of open banking and more API-led integrations to payment gateways and now lenders are increasingly offering more payments-related services in-house through partnerships.

This can be anything, from paying out to third parties directly, to offering named customer accounts and allowing them to pay out from borrowed funds directly. Or in some cases even receive payments (the collections dream!).

If a lender can offer the ability to hold a business’s income and pay out much like a bank would, given the growth of Banking as a Service (BaaS), why wouldn’t they? It makes the lender’s proposition that much more sticky, and delivers a much slicker user experience for the business. The traditional benefits that a bank offers: interest rates, overdraft facilities and lending, are fast dwindling.

These solutions are closing the gap between the two sectors and in turn are creating huge advances in Lendtech, both internally and for end-users.

On the one hand, lenders have far more visibility and access to real-time data, better reconciliation and better reporting functions, delivering the ability to create new revenue streams and new ways to reliably pay out and collect funds.

But for borrowers it also means a whole new host of functionality such as access to better FX rates for their own purchasing needs, easier access to funds and increased possibilities on how they utilize those funds effectively.

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In conclusion

Lenders and payments providers will continue to work together more and more effectively in the coming years and we’ll continue to see an evolution in how LendTechs work with their borrowers. The bringing together of two fast-growing and innovative sectors will only result in more efficiency and better customer experiences right at the point customers are beginning to trust ‘alternative’ and digital solutions more and more themselves.

By: Sharif Mohamed
Sharif is the EMEA Lead Lendtech Consultant at Currencycloud, working with lenders to improve infrastructure, Payments and FX capabilities. Sharif comes from a background in lending having spent over 5 years working across various teams in iwoca, including leading business development for the partnerships team and...

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