As you know, one of the key directions of fintech today is to make traditional banking products and services more client-oriented and end-user-friendly. Where a lot of bureaucratic actions are usually required, digital finance should offer an innovative, convenient and simple solution. One of these can be a LaaS solution or lending as a service. As an experienced fintech software development company, we decided to explore this concept to find out the main benefits and influence of LaaS on the further growth of the fintech industry.
What is Lending as a Service?
To answer what is lending as a service, we will have to ask another question. Have you ever used buy now pay later services? If so, then you already know the basic principle of LaaS, which is actually the extension of any credit or loan that takes place outside the traditional banking system.
The idea of such lending is not new and was actively used in auto loans as part of indirect lending services connecting buyers and dealers through software. Traditional financial institutions usually require lots of different papers and proofs to loan money for something even small, which became a true curse when they shifted to digital banking.
However, lending as a service became a timely solution to many problems that arose on their way to success, as it allows to offer lending products and services to customers through Application Programming Interfaces (APIs) and cloud-based platforms. So, LaaS is now part of a fast-growing trend of embedded finance, which also includes BaaS (banking as a service) and CaaS (cards as a service).
It is mostly used for small business lending or e-commerce because it provides a plug-and-play approach to lending. Now, companies can focus on their core business, getting access to the benefits of a full-featured lending system without the need to develop it.
Top Benefits of LaaS
It's no secret that the financial services sector undergoes changes very slowly, despite the rapid development of technologies and their already-understood advantages, finance is very slow to adapt to new ways and methods of providing services. Nevertheless, LaaS has already managed to prove its efficiency and benefits for financial institutions, which was reflected in the rapid growth of LaaS market.
Cost-efficiency
As mentioned earlier, LaaS eliminates the need for building lending infrastructure, which can be costly and resource-intensive, hence enabling institutions to substantially reduce operational expenses. So you can have all the benefits of a large structured lending system without building one from scratch.
Speed and Scalability
LaaS allows financial services providers to speed up the lending process itself. They can quickly offer loan or credit product to a customer without wasting time and resources. Moreover, they get the flexibility necessary to respond to market demands or seasonal fluctuations in credit activity.
Risk Management
LaaS offers advanced risk assessment tools and data analytics necessary to make data-driven decisions on many key lending issues. Thanks to this, financial service providers will be able to reduce the risk of default and improve the overall quality of their loan portfolios, hence, take higher positions in the lending sector.
Market Expansion
LaaS allows financial institutions to expand their market. Partnering with robust LaaS providers, they can reach new customer segments and geographies without the need for physical branches, creating lending options all over the globe.
Innovation
What could be better than to get a competitive advantage and not spend the annual budget on it? LaaS promotes innovation in the lending sector since financial institutions can benefit from the latest technologies and lending practices, bypassing long years of research and months of development of unique services or custom vs off-the-shelf software, betting on the convenience, speed and simplicity of LaaS lending solutions.
However, If you’d like to know more about custom development and how it usually works, read our article ‘What is the project discovery phase.’
Types of Lending Solutions
Outside the banking system, there are several different ways to get a loan. It's called alternative lending, which includes lending as a service. Let's take a look at a few main types
Marketplace lending, also known as peer-to-peer lending, is a widespread form of alternative lending and embedded finance. Its main idea is to connect borrowers and investors through platforms without traditional financial intermediaries–banks. Individuals and businesses access loans from a pool of investors. It's an example of decentralization that enables businesses to access decent loan offerings.
Commercial lending typically approaches banks and other financial organizations for funding. However, can be useful when businesses seek funding from non-traditional sources: online lenders, alternative finance companies or private lenders. In this case, you can count on greater flexibility and simplified loan origination processes compared to traditional banks.
Business loans can involve a wide range of lending options, including both traditional bank loans and alternative financing sources. In addition to banks, there are online lenders and peer-to-peer lending platforms (like, the independent laas platform) that offer businesses additional options, often with faster approval times and more lenient lending requirements.
Impact of LaaS on the Financial Industry
Well, the main impact of LaaS on finances is the automation, customization, simplified and reduced bureaucratic procedures of financial organizations. Also, it is worth noting that, along with AI in fintech, lending as a service platform significantly transforms the lending sector in a short period of time.
Moreover, LaaS, as well as RPA in finance before, has become the lifeblood of many new startups that offer more and more innovative services to users, thus introducing innovation as a must-have for modern financial organizations. As a result, the industry gradually became more competitive, which forces organizations to constantly move forward to introduce new services, new ways of providing these services and forever change the digital experience of their users.
The emergence of a new, previously unused technology has forced other sectors to move forward, so regulatory policy and legislation are now trying to catch up with certain areas of the financial sector to protect the rights and finances of users.
And, of course, all this forced even large traditional banks, the oldest players in this market, to adapt to new conditions, introduce new services and move with the times.
Conclusion
Loaning is quite complicated and time-consuming process, which is usually quite stressful for both the person who takes the loan and the person who provides it. LaaS solutions significantly simplify this process and help both financial organizations and their clients to change this bureaucratic experience to an innovative and convenient one.
If you plan to create such a platform or have an idea of implementing such a service in yours, be sure to contact our manager. We are ready to provide you with a product development team that truly cares about the result and about your success as well.
FAQs
The white lending program is a technology that allows financial institutions to use an already existing general lending platform to create their own branded solution. This platform enables financial institutions to provide a seamless user experience with minimal disruption.
The white lending program is a technology that allows financial institutions to use an already existing general lending platform to create their own branded solution. This platform enables financial institutions to provide a seamless user experience with minimal disruption.
The easiest and shortest way to create a lending platform is through a partnership with reliable developers. If you already have an idea, find a digital partner who can implement it the way you want.
The easiest and shortest way to create a lending platform is through a partnership with reliable developers. If you already have an idea, find a digital partner who can implement it the way you want.
The algorithm of actions is quite simple: explore the experience of a potential partner in a specific field, study their portfolio, review from other clients, and contact the manager. Communication is very important, you will be able to understand whether this is the company that can implement your idea.
The algorithm of actions is quite simple: explore the experience of a potential partner in a specific field, study their portfolio, review from other clients, and contact the manager. Communication is very important, you will be able to understand whether this is the company that can implement your idea.
