A hundred years ago banks had to figure out how to get close to people because people were largely sedentary. If you wanted to lend money to people you would better go where they lived, it would have been difficult for them to come to you. Banks addressed this challenge by building physical retail locations where prospective customers could visit and conduct business. It wasn't a hard sell, people were scared that keeping cash under mattresses was not a good plan. Fear and convenience made branches a huge hit with customers.
Today, the idea of Bank Branches is still premised upon fear & convenience but things are changing...fast. The cornerstone of a Bank assume that people are willing to deposit cash into it. Without deposits banks don't exist. Deposits provide the base upon which banking occurs and thrives. For most persons, fear is still the primary motivator behind depositing cash into a bank. It sure isn't for returns. But what about convenience? Do we still need banks in our neighborhoods in order to consume their services and products?
Technology has changed our perception of convenience. What is so special about the Teller Counter? Electronic Banking offers exponentially more convenience than Branches ever could. We can see many Banks still struggling with striking the right balance for customers. For many, it's the classic "chicken or egg" challenge. In many markets we have underestimated the rate of technology adoption and have played a lagging rather than a leading role. Many Banks have found that being late has been costly. Many are still late.
But who are we kidding? Banks have never been the engines of technology innovation in financial services. Small, often unheard of entities have been at the forefront of mobile money, online lending, payments systems and more. So what does this all mean for your small lending business?
It means that your focus on growth by building out a branch network of retail outlets for your small loan business may be the wrong strategy. In fact, I am certain it is the wrong strategy unless you are in a geography where access to the internet is prohibited or restricted. The fuel for your loan business should be technology. It's even more important than money because the right technology infrastructure will make your business more attractive to Investors.
Your branches should be virtual not physical. A branch shouldn't be a physical office but instead, just an organization of persons within a particular geographic footprint. To effectively build a branchless lending business here's what you need:
- A Loan Management System that allows you to use the Internet as your distribution and interaction channel.
- A Loan Management System that has a bias towards connectivity to other systems and platforms. You must plug into the larger lending ecosystem in order to deliver a full suite of services to your customers and to allow them to have a seamless borrowing experience.
- A Loan Management System that is customer-centric while managing user roles and permissions across branches and functions.
Things to consider as you create and manage your virtual branches:
- Will you allow users to have access across Branches? If yes, which roles and what level of access?
- What functions will you allow? Permissions are critical.
- Process discipline across Branches.
Take the money saved from building out physical branches and spend it to:
- Hiring great people
- Training them thoroughly on process and systems.
- Passing on savings to borrowers
To Your Success!