The One Area Fintech Really Needs to Improve

A person is holding a credit card in their right hand and making a payment but typing on a laptop with their left hand.Their face is obscured. The credit card is the focus.

Let's start with a trivia question. What do zero-day hacks, semiconductor sales and aluminum recycling rates have in common? 

All three saw record years in 2021. 

Fintech growth is on the list, too: VC funding into private fintech hit $134 billion in 2021, with the emergence of 151 new unicorns. 

The industry isn’t slouching. In fact, fintech leaders have been particularly innovative around their marketing and sales strategies, activating those strategies through key partnerships. Frontend successes and accelerated growth, especially that related to the customer credit and payment experiences, have followed. 

But fintech growth is still missing an incredibly important piece of the puzzle: backend operations.  

Before we dig into the real improvements fintech businesses need to make, let’s take a closer look at what they’re getting right. 

What Fintech Gets Right 

Forming Frontend Partnerships

Fintech leaders, especially over the last several years, have been extremely successful in forging partnerships that deliver a stronger frontend experience to consumers and lenders. (Think “buy now, pay later” options and white-label loans through Upstart). 

Such low-friction partnerships allow these financial technology companies to capture lending volume that belonged to retail and D2C partnerships (like Credit Karma), and direct the revenue to their other operations, including the development of new credit scoring models. 

Tapping New Credit Population

Fintechs have discovered a new credit-worthy population. They’ve expanded the lending market through underwriting and credit AI models which pull in nonstandard attributes to give a different, arguably fuller, picture of a consumer’s credit-worthiness — a picture the bureaus don’t have. (Consumers have long felt that FICO scores aren’t always reflective of their true credit-worthiness — so the need is easy to capture.)

With this different view of individual credit, fintechs have been able to successfully increase approval rates and decrease charge rates, winning on their highly advanced AI. But because a FICO score system has been in place for so long, the struggle to fit regulation remains. 

How can an AI be trusted to eliminate discriminatory lending practices? Even as fintechs focus their energy on ensuring their models meet regulations, they continue to grow their business through frontend operations that contribute to their revenue requirements. 

So, they’ve cracked the code on frontend growth. That’s where their money goes. And rightly so — it’s what investors want. But what’s happening on the backend, in their servicing model?

What Fintech Gets Wrong

As companies build their business around the digital model, they require fewer human resources to service that model. With a great credit model, collectors, too, won’t be in high demand. The pitch, then, from fintechs to their investors, is growth, growth, growth. 

And yet, there are unavoidable aspects of credit and payments servicing that play out on the backend: 

  • Payments fail
  • Someone commits fraud
  • A consumer loses their job
  • A consumer changes addresses
  • A consumer has a medical emergency
  • Anything at all happens to a consumer

Transaction disputes, lost billing statements, account transfers — anything can happen, and it will. That’s why, regardless of how much growth fintechs can keep on the frontend,  optimizing backend operations is still a must. 

Today, fintechs aren’t keeping backend credit servicing and collections operations in the same light as frontend servicing. These tasks and processes are simply not as visible or exciting as frontend growth — but they are just as important. 

And they’re inevitable. 

As frontend growth continues, investments in the backend optimization have to deliver, too. 

What Improvements Can Fintechs Make to the Backend?

Its lack of allure isn’t the only blocker to backend optimization. Balancing operational goals with demands for frontend growth requires careful resource planning and a true overview of CX. 

Today, a lot of fintech companies outsource this operational effort — an easy solution, but perhaps not the most economical. 

Imagine a consumer who originates a loan with one company, gets the loan serviced by another, and has another entirely different experience with a collector on the same loan. It’s an experience many consumers have had, and one many have come to despise. Where the experience is fractured for the consumer, the metrics are fractured for the operator. At a certain scale, this fracture becomes quite an expensive rift. 

What’s the other option? 

As fintechs grow, spreading their business across strategic support partners, vendors and outsourced agencies, the ability to aggregate the customer experience across multiple channels is critical. So is the ability to monitor it all — and to understand the metrics. 

Fintechs will require evidence for their investors that operations are under control, that everyone, across all channels and vendors, follows regulations and experience requirements.  

They can either 1) QA phone calls/complaints across vendors, or 2) aggregate all communications and run analytics over multiple conversation streams, across multiple vendors and channels. 

Doing the second is sensical. It reflects the same strategies fintechs use to create and operationalize nonstandard data attributes for the frontend of the business. Aggregating communications and metrics allows you to determine how aggressively to ramp up activity on any given account. 

As an example, imagine that every conversation with a debtor gave you a new piece of information on likelihood to pay. (This is true — but many fintechs don’t know it yet.) You could use attributes such as: 

  • The sentiment with which the consumer describes their situation
  • The degree or frequency to which the consumer interacts with the company
  • The statements they make about how they prioritize their money

All of these attributes can be exposed and be pushed into a more advanced prioritization and engagement model for the servicing of accounts and collection of funds. 

Mimic Frontend Success in Backend Loan Operations

Fintechs are already succeeding. They’re breaking growth records through strategic partnerships and upending standard credit models. But they’re neglecting the same care on the backend of loan servicing and collections operations. 

By mimicking on the backend the frontend efforts to 1) better aggregate and model data and 2) provide unified experiences across vendors and channels, fintechs can create new opportunities for customer experience and compliance. A focus on loan servicing optimization will keep the house in order with regard to both brand and data, and show investors that fintechs can deliver on their promises across the business — not just at the point of origination or payment. 

If you want to learn more about how businesses can efficiently improve backend loan servicing, connect with our team below.

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