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Lending 2.0: How Verticalisation Will Change Lending Forever
- The generic lending model is facing a significant challenge from a new wave of innovative fintech start-ups that are embracing verticalisation.
- Lending is one of the largest markets and profit pools out there.
- The emergence of modern infrastructure, such as Taktile, Stripe, Modulr, ComplyAdvantage, Onfido and others is driving verticalisation now.
- Until a few years ago, the data source for credit decisioning was limited to credit bureau data; however, it has changed with the successful adoption of alternative data.
- The next generation of lending fintechs are specialised within verticals, ideally large/fast-growing ones, like embedded finance in e-commerce platforms, payment processors, social media platforms, telecom, and ride-sharing platforms.
- Vertical lenders provide a superior overall customer experience and compete with generic lenders by offering three top features: tailored product features, first-party data in underwriting, and distributing via embedded vertical workflows.
- VCs potentially have a lower market size and scale ceiling for vertical lenders compared to generic lenders.
- There will be fewer multi-unicorns but more medium-sized companies, still offering decent venture scale returns for early-stage investors.
- The future of lending will leverage the modern infrastructure layer and alternative/first-party data to provide lending products with personalisation, convenience and right-timing.
- We believe there are several other exciting themes of change in lending which we will unpack in future articles.
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