THE DRIVING FACTOR
A NEW DIRECTION FOR CONSUMER CREDIT

Marsh Finance

Dear Chief Technology Officer,

Did you see what I did there? Have I got your attention? This is not a letter from a regulator, but it is a call to arms and, perhaps, offers regulation of a different kind.

Some Chief Technology Officers (CTOs) reading this may truly feel they work in innovative industries. After all, the CCTA has a diverse membership and alternative lending is naturally a hotbed of creativity. New products and forms of lending are created and presented to market by alternative lenders. This often leads to new sectors where their innovation is replicated.

Other member CTOs may recognise the staleness of their industries where, despite transforming businesses to enable operation in an increasingly digital age, the industry practices, products, and processes have not evolved since the 1970s.

Is this necessarily a bad thing? If it’s not broken, why fix it? Increasingly consumers, especially younger consumers, are expecting their products to be different and also the means by which they acquire and consume them. This presents a problem in industries where the incumbents have an unconscious bias towards inertia and maintaining the status quo. The steps to change are too steep, the powerful too entrenched and the whole market becomes arrested, without necessarily realising it.

In my industry, consumer motor finance, all the parties need to communicate and interoperate digitally. The customer, the dealer selling the car, the broker arranging the finance and the lender underwriting the loan application all need to seamlessly interact.

The customer journey is much talked about and the goal of the industry and its regulator is to ensure that customers achieve good outcomes. This reliance on a working network of actors is anathema to innovation as, in order to exist, you must conform. Any innovation, however well received, is dependent on the whole industry adopting the technology. This could take years, be badly or partially implemented or even ignored.

Established technology such as Open Banking is a case in point. Despite being around in concept form since 2015, it is still not widely adopted as an effective tool in the assessment of affordability. Some intermediaries see it is a disruption to the customer journey and lean towards lenders who do not require or have not adopted it.

So we conform to survive, but even then we complicate matters. The need for interoperability means that all lenders offer Application Programming Interfaces (APIs) to enable their services. Unfortunately, they all use different methods of transport, methodology and have no common format. For a car dealer, broker or IT platform provider, these differences make each lender integration unique, and therefore time-consuming and costly to implement. This is a barrier to adoption even if they conform to the industry status quo.

The obvious solution is a common platform, an open standard, for creating API suites between all firms in our industries.

The standard needs to provide a framework that is future proof and does not limit or stifle future innovation. Where such standards have been created, it has often liberated industries. A good example is the travel industry. The industry was dominated by small high street travel agents who had a closed network of opportunities made exclusively available to them that stifled competition and innovation. Only when airlines, hotels and car rental suppliers got together to create data messaging open standards for interoperability was the industry transformed and new ways of selling holidays became available.

There is no reason why this transformation could not be achieved in financial services. In motor, and by association motor finance, there are new entrants attempting to sell cars to the public in new ways. Car finance brokers are also generating leads from the internet and social media as well as traditional retail brokers who generate leads from car dealers.

There are also aggregator sites, typically offering insurance comparison products who are now starting to offer motor finance products. Wouldn’t it be fantastic to liberate all these operators and the lenders that facilitate car sales transactions by having a common method of sharing data? It can only be a good thing, right?

Commercial negotiations between firms could be agreed in the morning and operational in the afternoon as lenders are integrated into intermediary platforms by importing a configuration file with no other work required. New lender products could be launched and tools made available to the whole market at the click of a button. Small, innovative firms able to interoperate with the biggest firms, without waiting for their slot in a development cycle.

Dare to dream, it is very possible with open standards.

Andrew Marsh
CEO and wannabe CTO