Opportunities for competitive advantages in consumer lending

In this first post of the Expert Blog series, we asked Kees Droppert for his view on lending solutions.

Published on: September 15, 2021

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By five°degrees

The lending industry is facing quite a few challenges. Naturally, many industries are struggling due to the Covid pandemic still impacting economies worldwide. Lending is no exception. But there are other things at play as well. We asked our industry expert Kees Droppert to elaborate on the challenges and more importantly: on the solutions.


An industry under pressure 

One of the challenges is the declining numbers in consumer lending. A quick glance at the available figures of the market would raise many eyebrows. Taking the Netherlands as an example, the outstanding in consumer finance has declined dramatically. The outstanding installment and revolving loans in 2010 added up to 29 billion euro. This number went down to around 13 billion euro in 2020 (CBS, DNB figures). This does not include overdraft on the current accounts and the outstanding balance on credit cards. This big change is obviously the result of a switch in the Dutch market from revolving loans and more specific interest-only loans to almost exclusively installment loans. Many surrounding countries show a similar emphasis on installment loans.  


A second trend in the Netherlands is the decline in the number of suppliers of consumer finance. The market shows a concentration of a few large players with Dutch Tier 1 banks dominating, a couple of medium-sized players and car finance specialists. Some new players have entered the market, but aggressive growth scenarios were not reached for reasons not only related to the pandemic.  

The online channels are growing their market share. But a substantial share of the new production and portfolio is still held by specialized consumer credit brokers. This is a major difference with for example Germany, Belgium and France which rely heavily on direct financing.  


A third and major trend is the historically low-interest rates. This has minimized interest margins. The Netherlands even temporarily – and who knows how long that will be - lowered the maximum interest rate to 10% due to the Covid crisis. But even without those temporary adjustments, the interest rates are incredibly low and margins are minimal.  


Lastly, the regulatory circumstances in Europe have set the bar extremely high for lenders. Regulations are likely to change even more. The European regulations set the generic outline, but the individual countries provide their own interpretations of these regulations. This means that lenders that operate Europe-wide have the challenge of complying with an array of variations in legislation. New regulations outlined in the CCD will lead to stricter guidelines in terms of consumer protection, specifically things like overindebtedness and transparency in product information. Regulations in the Netherlands have been stricter than other European countries in this sense thus far. In addition, regulations are as it is put ‘form-free’ which means the objective and spirit of the regulations are defined, but the way lenders can comply is not strictly defined. They need to find an adequate way to do so themselves, which means they can be mistaken. It is skating on thin ice. This makes the Dutch market, a market to watch when seeking inspiration for how to comply with the upcoming European-wide regulations.  


Glancing forward 

When we look forward in time, it is expected that regulations will change even more. Consumers are being protected more and more. The digital landscape is continuously changing and vulnerabilities of consumers to ill-meaning pseudo-lenders will surface, leading to stricter rules. Meanwhile, consumer demands also increase. They demand 24/7 service, easy onboarding, a pleasant experience and as little administrative tasks as possible. 

In short: it is a volatile industry that forces you to be agile. The Dutch market is more challenging than others. To win in this industry, lenders need to be even more agile, so they don’t cripple themselves at the first comment of a regulator.  


Embracing the challenge 

What would be a solution to these challenges the lending industry faces? It comes down to embracing these challenges and getting ahead of them. This means building on three pillars.  


Transparent efficiency 

The first is encouraging transparency and efficiency in their systems. Activities need to be tracked, data based on which loans are accepted or declined needs to be diligently stored, analyzed and processes need to be straightforward and documented. This applies to all stages of the loan process: origination, administration, and collection. The more every part of your lending organization runs on clear, uniform information the better risk management can include all data into uniform and overarching analysis. Being in control of the data and clear in the rule definition is essential to keeping the portfolio healthy and the clients safe. 


Value drivers  

The second is lowering the operational costs drastically. This can be done by embracing more scalable systems that keep recurring costs low and only grow with organizational success and by eliminating unnecessary exclusive technology. At the moment the interest rate for consumers is low, the funding costs are low. The cost of risk is low. The key question is: how low can you go in lowering direct and indirect operational expenses? 


You will need to strategize on the “classic” value drivers. Creating new products is all about having a clear view of your obtainable target portfolio size.  Competing for growth is also about the right pricing, the lowest possible funding cost and successful multichannel distribution. A lot of current players still struggle with too high contract-related operational expenses. Could be because of their current application landscape, or way too expensive outsourcing. Last but not least, what kind of risk strategy and risk appetite do you offer the addressable market? 


Part of the first value driver is the distribution strategy. For this, lenders will need to develop custom lending solutions to stand out from the competition. Through experimental innovation and growth hacking, they can develop innovative products and open up a blue ocean rather than continue to fish in the red ocean that is now consumer lending.  


Requirements of innovation 

The only way to service this transparency, data control and cost reduction, while still experimenting in innovative customer engagement is to build the customer engagement on a core system that allows for swift configuration. In developing °neo, our cloud native core banking platform, we paid close attention to unlocking the data for risk management activity and extensive data analysis without compromising on flexibility. That is one of the main reasons we chose to build it Cloud Native. With the so-called lift-and-shift technology (simply offering traditional technology hosted in a cloud environment) we could have never offered the security level or the opportunity to include innovative third-party technology, the way we do with a cloud native solution. You can really take a best-in-breed approach. The sandbox in °neo allows you to experiment with new technologies, new integrations, and new products without jeopardizing the current contract data.  


Another key factor is to eliminate the developer-lock-in for compliance. Many banking architectures rely on development activity to adjust to new regulations. Developers are hard to come by. By eliminating the need for a developer when implementing new compliance regulations, you put the specialist behind the wheel. Not only does this increase the chance of the legislation being implemented correctly, but risk managers feel the urgency and are likely to implement it much faster. 



To adjust to new requirements and challenges you need a future-proof core. Systems that offer management reports with enormous delays, budget overwrites, a general dragging and schlepping of projects just will not do anymore. Choose a core architecture that is flexible and scalable but make sure that it is banking grade. Once connectivity and security are a given within your architecture you can focus on your unique competitive quality, leveraging all the innovative technology being developed right now.


Learn more about our cloud native core banking platform °neo, and discover how it can get you to a market-leading position in the lending industry.


Learn more about °neo

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