THE AFFORDABLE CREDIT CHALLENGE – SIX PROBLEM-OPPORTUNITY STATEMENTS

1. THE AFFORDABLE CREDIT CHALLENGE – SIX PROBLEM-OPPORTUNITY STATEMENTS

2. Six Problem-Opportunity Statements In preparing the challenge, six Problem-Opportunity Statements have been created to act as a guide for partnership discussions, to help describe the barriers that borrowers and organisations experience and to frame how different technologies may provide answers. They are meant to spark a wide range of ideas, in line with the diversity we have encountered working with Community Lenders and Fintechs to prepare the challenge. The statements were initially drafted through a document review of government and think tank research and analysis in the Community Lending sector. They were then iterated through expert interviews and workshops with Community Lenders and Fintechs to gain a deeper understanding. This allowed us to tailor the statements to embrace the diversity in the Community Lender and Fintech products and services, and organisational structures and strengths.

3. 1 2 1. Community Lender products are insufficiently visible or known in the moment of borrower need 2. Community Lenders’ digital user experiences are not always user-friendly or well designed 3. The customer journey to join a credit union can be overly complicated and slow 4. Data and tech are used too little by Community Lenders to monitor customer needs and risks 5. Community Lenders do not unlock the full power of data in making lending decisions 6. Complementary services offered by Community Lenders and support organisations often do not benefit from data sharing The Affordable Credit Challenge:Six Problem-Opportunity Statements

4. Getting a loan with a Responsible Lender – Six Problem-Opportunities

5. “We’ve made big progress with getting our loan decision and processing times down. But all of that doesn’t matter if people don’t know about us.” Credit Union Representative

6. COMMUNITY LENDERS PRODUCTS ARE INSUFFICIENTLY VISIBLE OR KNOWN IN THE MOMENT OF BORROWER NEED CONSEQUENCEAs a result, borrowers are unaware of responsible lenders as a credible (and often preferable) alternative to high cost lenders. This awareness needs to exist prior to the moment of need, when prospective borrowers do not shop around any more. Growing loan volume is a high priority for Community Lenders, but this is hard to do without awareness. PROBLEM & CAUSEPeople in the UK have little awareness of affordable lending alternatives because Community Lenders can’t compete with marketing budgets and superior technology from the high cost lenders.

7. COMMUNITY LENDERS PRODUCTS ARE INSUFFICIENTLY VISIBLE OR KNOWN IN THE MOMENT OF BORROWER NEED HOW MIGHT... Online social marketing and branding systems support Community Lenders to attract customers with their products and services? Aggregation connect Community Lenders with a wider audience and help them target specific products or communities? Analytics and Smart referral networks identify potential financially vulnerable customers during or prior to their immediate borrowing need? OPPORTUNITYIfCommunity Lenders knew more about potential customers who would benefit most from their services, and could target and inform them in a compelling way, they might be able to reach these customers before the high cost lenders do. HOW MIGHT... Search Engine Optimisation (SEO) improve visibility of Community Lenders at the moment of financial need?

8. “Services like Netflix and Uber have a really raised the bar. People expect a simple and easy to use website that is also mobile friendly” Credit Union Representative

9. COMMUNITY LENDERS’ DIGITAL USER EXPERIENCES ARE NOT ALWAYS USER-FRIENDLY OR WELL DESIGNED PROBLEM & CAUSEOther popular digital services (from Netflix to Uber) have raised expectations for services across all sectors,, including getting loans, that Community Lenders cannot meet because their services often are not digital at the core, nor very accessible and responsive on the digital devices (potential) customers have close at hand in their busy work and home lives. CONSEQUENCEAs a result, potential borrowers perceive the digital experience of many Community Lenders as outdated and in some cases difficult to use and navigate, whilst overlooking that these lenders are much more affordable than High Cost Short Term Lenders.

10. COMMUNITY LENDERS’ DIGITAL USER EXPERIENCES ARE NOT ALWAYS USER-FRIENDLY OR WELL DESIGNED HOW MIGHT... UX / Service Design improve customer journeys for borrowers and increase application rates in comparison with High Cost Short Term Lenders? Chatbots /Interview Scheduling develop customer facing communication channels and speed up staff work to gather application evidence? White label digital services provide affordable, well maintained website/app services without the need for lenders to build new internal capacity? OPPORTUNITYIf Community Lenders had collaborations with new tech that improved the digital user experience they provide, with reliable operational support to iterate and maintain that service, they could begin to host useful, inclusive and responsive tech solutions that also would provide additional operational and data analysis support.

11. “It’s like having two nightclubs in front of you when it’s raining outside. One nightclub is saying, ‘come inside into the lobby while we check things out and keep the line moving’. The other nightclub isn’t even opening the front door. It’s just letting people wait out in the rain.” Credit Union Representative

12. THE CUSTOMER JOURNEY TO JOIN A CREDIT UNION CAN BE OVERLY COMPLICATED AND SLOW PROBLEM & CAUSECredit unions have developed membership and loan application requirements for customers that can seem overly complicated to potential customers because of their common bond requirements, risk modelling and reporting to the different regulations that govern the sector. CONSEQUENCEAs a result, the membership and loan application process can appear to require more time and effort for no reason, and present barriers like membership and savings requirements that potential customers are not yet familiar with nor interested in upon applying for a loan.

13. THE CUSTOMER JOURNEY TO JOIN A CREDIT UNION CAN BE OVERLY COMPLICATED AND SLOW HOW MIGHT... Aggregation services provide efficient and effective journeys that allow customers to compare products and services, and lenders to target customer needs at pace? Fast savings products support customers and lenders to include wraparound services within loan and membership applications? Core banking alternatives speed up and support management of new applications alongside managing existing customer accounts? OPPORTUNITYIfCommunity Lenders can provide more efficient and integrated application processes for customers, they might provide attractive alternative real-time application experiences for those tempted to apply for fast but high cost credit. HOW MIGHT... Onboarding services be developed that include key parts of the application process? Integrated messaging services support rich digital interactions between customer and lender at pace?

14. “How can we better deal with people with colourful or shaky credit histories?” Credit Union Representative

15. DATA AND TECH ARE USED TOO LITTLE BY COMMUNITY LENDERS TO MONITOR CUSTOMER NEEDS AND RISKS PROBLEM & CAUSELoan defaults are a huge cost for Community Lenders because it erodes their abilities to lend, and develop their services. CONSEQUENCEAs a result, lenders need to spend considerable time and capacity to managing ongoing repayment and supporting financial well being of members and customers, as a way of mitigating the risk of loan defaults.

16. DATA AND TECH ARE USED TOO LITTLE BY COMMUNITY LENDERS TO MONITOR CUSTOMER NEEDS AND RISKS HOW MIGHT... Real time usage / Data aggregation help Community Lenders learn more about their members so that they can iterate their products and services, tailor to borrower needs, and expand products or services offered? Financial Advice/ Money management/ Floorwalkersupport for customer engagement through technology promote financial wellbeing and trust in Community Lenders and sector? OPPORTUNITYIfCommunity Lenders can use technology to support the fostering of relationships at a community level (their traditional strength), they could generate better real-time insights on member needs and behaviours. This would not only mitigate the risk of loan defaults but also inform new products and services. HOW MIGHT... Messaging/ Customisable CRM support ‘member relationship management’ with processes, strategies and systems that are fitted to Lender values in community and trust?

17. “People don’t wake up and need a loan in two weeks.” Fintech Representative

18. COMMUNITY LENDERS DO NOT UNLOCK THE FULL POWER OF DATA IN MAKING LENDING DECISIONS PROBLEM & CAUSECommunity lenders have developed nuanced and detailed loan application processes, because this fulfils their requirements for Risk Modelling, balancing loan books and regulatory compliance. Some front line staff also value collecting information while interacting face to face or over the phone with customers. These lenders serve their communities using the experience they have built over time. CONSEQUENCEThis tradition and value of personal relationships results manual and lengthy processes that use additional, non-traditional credit data sources and questions, and lead to unwanted appointment and waiting periods for applicants and more manual processing requirements for the lender’s staff.

19. COMMUNITY LENDERS DO NOT UNLOCK THE FULL POWER OF DATA IN MAKING LENDING DECISIONS HOW MIGHT... AI provide intelligent data analysis and risk modelling? Open Data/ Data Aggregation/ Alternative Credit Scoring bring additional data sources which can augment, grow or speed loan decision process, and aggregate risk? Migration services help lenders integrate new technology in their application process in existing member accounts? OPPORTUNITYIfCommunity Lenders could better model loan decisions, access open data when relevant and needed, or aggregate and leverage non-traditional forms of credit scoring and affordability, lenders might be able to better manage risk while expediting loan decisions. HOW MIGHT... Underwriting/ Decision modelling provide or augment information in support of Community Lenders established loan decision making processes?

20. “We are also thinking about how we digitise financial inclusion advice. We do this really well face to face, but how do we transfer that into the digital world?” Credit Union Representative

21. COMPLEMENTARY SERVICES OFFERED BY COMMUNITY LENDERS AND SUPPORT ORGANISATIONS OFTEN DO NOT BENEFIT FROM DATA SHARING CONSEQUENCEAs a result, although services are often highly interrelated, they remain siloed within the various organisations and borrowers do not benefit from more cohesion and data sharing happening behind these scenes. PROBLEM & CAUSECommunity Lenders often collaborate with other community stakeholders to design and deliver a range of complementary services (e.g. savings, income maximisation services, finance management support, debt management and consolidation, unemployment support) to financially vulnerable and excluded borrowers. However, only little data sharing is happening across these local networks because the supporting data sharing capabilities and technological infrastructure does not exist and is not their main focus.

22. COMPLEMENTARY SERVICES OFFERED BY COMMUNITY LENDERS AND SUPPORT ORGANISATIONS OFTEN DO NOT BENEFIT FROM DATA SHARING HOW MIGHT... Data sharing / Open APIs provide the mechanisms for organisations to speak to each other, and build information quickly to the benefit of the sector and its borrowers? Data standards / Digital ID help to share best practices that allow organisations and customers to port data across different wraparound and financial services? Collaboration / Referral network support provide real-time streamlined communication channels, that ensure borrowers have the right services they need? OPPORTUNITYIf there was a better way for local community services to build relationships, integrate systems and share data, then borrowers might benefit from more holistic and integrated financial services and support.