How Lending-as-a-Service (LaaS) is Empowering Non-Bank Lenders

For long, lending has been the “bastion” of banks and lending institutions across the globe. In recent years, cloud platforms have transformed lending services through digitalization. With easy access to cloud-powered platforms, non-traditional lenders can now disburse easy loans for the convenience of their customers.

As a cloud service, Lending-as-a-Service (LaaS) offers a modern approach to customer loans compared to traditional modes. Not surprisingly, cloud-powered lending will grow to $139.8 billion in 2024 and $571.6 billion by 2030.

According to the 2024 State of Digital Lending report, digital lending is the prevailing standard. To grow their business, financial institutions must prioritize providing a seamless digital experience to their customers.

While more traditional institutions have adopted digitalization, most lending processes are only partially digitalized. The digital lending report found that only about 50% of institutions have a digital lending process in place.

Here’s everything you need to know about LaaS-based lending and its benefits.

What is Lending-as-a-Service (LaaS)?

Also referred to as marketplace lending, LaaS is a cloud-powered digital platform that allows non-banking lenders to leverage digital technology in their lending process. For example, financial institutions can leverage technologies like Artificial Intelligence (AI) and APIs along with cloud infrastructure to streamline their LaaS services.

As part of the Banking-as-a-Service (BaaS) model, LaaS enables non-traditional players to configure their financial lending service – without the constraints of traditional lending. An example of the LaaS model is “Buy now, pay later” (BNPL) where consumers can purchase products immediately and pay for them at a later date.

LaaS can work across multiple areas including:

• Small-to-medium business (SMB) lending including working capital and equipment procurement.
• Consumer loans for purchasing retail products, electronics, and automobiles.
• Residential mortgages.
• Online marketplaces.

As compared to traditional lending, LaaS is easier to integrate with third-party applications including web applications, mobile apps, eCommerce sites, and online games.

Here are 5 benefits of LaaS platforms for consumers and lending companies:

1. Customer satisfaction

With the LaaS model, retailers can now offer customers the convenience of the BNPL facility. For younger consumers from the Gen-Y and millennial generation, LaaS provides an alternative option to pay for expensive consumer products like electronics and automobiles.

For instance, BNPL allows them to break up high payments into smaller manageable installments, thus making high-end purchases more affordable. Similarly, consumers don’t need to endure the challenges of traditional lending mechanisms such as:

• High interest rates
• Lengthy loan approval processes
• Loss of credit score and rating
• Time-consuming loan disbursal

• Cost efficiency

The cloud-powered LaaS model also delivers cost benefits for lending companies as compared to traditional lending models. By partnering with an efficient LaaS solution provider, financial institutions can save business expenses by:

• Shifting away from a dedicated team for servicing customer lending.
• Reallocate valuable resources or teams from loan approvals and disbursement to high-value tasks like customer experience.
• Eliminating administrative costs of collecting supporting loan documents, KYC procedures, and maintaining customer accounts.

Similarly, lending companies can venture into new financial products and services such as low-cost EMI-based purchases and BNPL.

• Improved efficiency

The LaaS model of lending improves operational efficiency by removing the limitations of traditional lending practices. For instance, it can drastically reduce time spent in loan underwriting and disbursement – and clear loans in a matter of hours or minutes.

Through automation, LaaS platforms can also eliminate the costs of manual lending and human errors. As an example, with LaaS-enabled embedded financing, consumers can now get quick loans at the point of purchase.

Further, using APIs, LaaS platforms can validate customer data for:

• Credit assessment
• Loan eligibility
• Compliance with financial regulations

• Wider customer reach

Be it for individual or business needs, borrowers have various needs to fulfill through loans. The traditional lending system is often perceived as time-consuming and bureaucratic by small-time borrowers and businesses. For example, SMEs may need short-term finances to grow their business to the next level.

With lending-as-a-service, financial companies can reach out to under-serviced customers, thus increasing their customer reach. For instance, by partnering with a LaaS platform, small retailers can offer low-cost EMIs to rural customers. Similarly, a small-time retailer can tap into new global markets or business opportunities to grow their revenues.

• Improved scalability

With cloud-powered lending services, financial institutions can easily scale up their loan processing and related activities during peak season. LaaS systems can deliver higher scalability, which is essential for growing companies or those exploring new markets.

Scalable growth is achievable without investing more in IT infrastructure. At the same time, lending companies can handle more loan transactions without compromising on performance and customer experience. Besides, LaaS platforms are easy to integrate with third-party systems, thus facilitating real-time data exchange between business departments.

Conclusion

As a powerful cloud service designed for the financial sector, LaaS has transformed the delivery of personal and business loans. With a sharp customer-centric approach, LaaS can benefit both borrowers and lenders by reducing operational costs and tapping into a wider customer base.

Verinite is a leading consultant and technology service provider. We bring years of expertise in loan origination, loan management, and collections for the benefit of non-traditional lending companies. At Verinite, we believe automation and digitalization are the future of the lending domain.

Are you looking for a financial technology partner to transform your lending services? Get in touch with us today.