April | 2020
The paper discusses:
Around the world, major industries are experiencing a phase of constructive disruptions.
Groundbreaking product lines, supported by emerging technologies, are challenging incumbents by better identifying and addressing customer pain points.
This wealth of innovation and market competition has led to a significant gap between consumer awareness and their ability to establish best fit. For instance, when a consumer searches for a credit card online, there are multiple cards suggested through various card-sourcing platforms. With so many choices, the consumer is unable to easily decide on the best fit.
This gap has provided an opportunity to niche players known as “aggregators” to step in and help consumers in their decision-making and fulfillment process.
Who are aggregators?
Aggregators are platform providers that offer consumers comparative synopses of the best solutions in the market, fine-tuned to their search filters, patterns and keywords; location tagging, profile, and browsing history.
Aggregators use third-party services and API gateways to pull information from multiple data sources, and aggregate it into a feature-rich comparative display that helps consumers identify their ideal product and initiate its purchase directly from the platform.
A typical aggregator model (Figure 1) uses channel outreach to connect with a customer early. The platform’s intuitive tools and integrated ecosystem help consumers make better decisions and connect them to the best offers in the market, faster.
Figure 1: A typical aggregator model
How aggregators are making inroads in the lending industry
As of 2020, Millennials (or “Generation Y”) are between 17 and 36 years of age. They are one of the first generations to spend their formative years online, and are the largest revenue-driving demographic for aggregators. Based on recent Bloomberg analysis of United Nations data, we will have an estimated population of 2 billion plus global millennials by the year 2020.1
Millennials prefer online accessibility, digital experience, and speed of transaction over trusted banking relationships. The penetration of aggregators in the banking industry can be attributed to the growing need of Millennials to secure faster credit decisions and vastly improved customer experience without having to walk to a branch.
To compete with the lending majors, aggregators face high cash burn rates as they establish brand value. In these early stages, platforms seek backing from venture funds and build revenue models around advertising, commission from leads, and technical integration revenue that allows for longterm sustenance.
Aggregators use algorithms to categorize and match prospective lenders with borrowers on their platforms. They gather credit information from marketplace lenders, credit unions, county and payment records, social media and browsing history, then collate it, using their proprietary programs, to understand the customer’s willingness and ability to repay, and match it with the best offers from lenders.
Figure 2: Some prominent aggregators in the lending ecosystem
The role of aggregators in real estate and mortgage financing
More Millennials are buying homes earlier in their careers, due to rises in disposable income and the generous appreciation on real estate investments.
This has led to tremendous growth in mortgage volumes on which traditional lenders have capitalized—but now a new age ecosystem in the mortgage industry is causing significant disruption:
What does this growth of aggregators mean to banks?
The growth of aggregators means opportunities for both banks and platform providers to catch the customer early and lure them with exciting offers to increase sales revenue. Though it is logical to assume that these aggregators are helping banks scale up their loan business, there is a flipside to this relationship which banks need to consider before setting up their campaigns and offers on aggregator platforms.
Transition of the customer base
Today, the major advantage that traditional banks have over younger fintech companies is the customer base and data insights they have built over the years. But as usage grows, aggregators will gradually create a customer base that is significant enough to drive revenue independently. At that time, aggregators can start operating as independent lenders, which will cause a major impact to the sales of the traditional lenders and banks.
For instance, the US-based Zillow has been one of the foremost real estate aggregators for mortgage lending. In April 2019, Zillow officially launched their home loans arm, solidifying their place at virtually every touchpoint in the home-buying and selling process, while their original loan suppliers became competitors on their platform.
But the landscape is changing. Banks continue to go digital. More and more centralized credit information is available online. This provides greater access to granular customer data, enables automated decision-making, and more bespoke lending with lower cost. Eventually, digitalization will enable banks to match the best offers from independent aggregators.
Revenue leakage to competitors
For banks to leverage underwriting algorithms and customer behavioral data, the underlying technology requires a lot of data exchanges. Aggregators are also able to retrieve critical customer financial information through these interfaces, and are able to create target cross-sell campaigns for competing banks on a commissionsharing model, leading to revenue leakage for the banks. To prevent this, banks need to adopt encryption and data-masking features, and set up third-party interfaces with partner platforms to protect sensitive customer data.
Closing note
Considering the changing customer mindset, growth and scalability of the digital lending ecosystem requires collaborative models between banks and aggregators.
In the lending market, the key parameters for customers are:
Traditional legacy banks have an advantage with the first three parameters, but they struggle to match the superior customer experience and ease of interactions offered by alternate lenders. Aggregators can help traditional banks incorporate digital solutions throughout their credit journeys, improving their customer experience from end to end, and increasing the agility of their underwriting processes.
Aggregators are helping banks define the best approach for their needs, and providing the blueprints to build a digital-ready enterprise, emphasizing technology capabilities to reshape the future of lending.
References
2. https://angel.co/company/morovus
3. https://www.homebay.com/tips/which-home-value-estimator-is-better-redfin-or-zillow/
4. https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=269495102
Joy Banerjee
Managing consultant, Wipro
Joy is an industry expert with over 17 years of experience in retail banking, loan origination, credit services and digital transformation. He is a core member of the Domain Consulting and Solutions group, focused on delivering innovative solutions in credit services and the emerging core space.
Wipro’s Banking, Financial, and Insurance Salesforce practice provides real-time transactions with results, data security, and improves the customer experience.
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