The Evolution and Rise of Lending as a Service

Shownotes

In this episode of Sunny Side Up, host Tara Quehl talks with Preethi Janardhanan, the Lead Product Manager at Rapid Finance. Preethi has worked at startups, Fidelity Investments, and American Express and is now focused on launching Rapid’s Lending as a Service solution. Tune in to hear about her journey and how Rapid Finance was able to quickly implement a loan origination platform to help the Small Business Administration (SBA) launch the Disaster Recovery Program for Covid Idle in April 2020. Hear about how she was able to accept 700,000 applications on day one and how their experience opened up a new product journey for Rapid. Learn more about what banks and FinTech need to do to stay ahead of the competition, including providing tailored and scalable solutions that meet customer expectations such as speed, efficiency, and transparency. Discover what trends are driving lending as a service today, such as shrinking availability of capital to small businesses, understanding data analytics and trends to minimize risk, tighter regulations, and digital transformation.

About the Guest

Preethi leads products at Rapid Finance. She is now focussed on Rapid Enterprise their newest business line that is launching Rapid’s Lending as a Service Solution to the market. Rapid is a leading Small Business Lender that has been lending to small businesses in for the past 15 years based out of Maryland.

Connect with Preethi Janardhanan

Key Takeaways

• At the end of the program, SBA approved 400 billion in loans and grants to help small businesses across America.
• Lending as a service has applications in consumer, small business, and commercial banking.
• The need for access to capital quickly is a key factor for small businesses.
• Financial institutions and banks are looking to nurture and grow relationships with small businesses.
• Need for financial institutions to partner with FinTechs to provide tailored, modular, and scalable solutions.
• Gathering customer feedback through conversations with providers, financial institutions, partners, and market research agencies.
• Establishing objectives and identifying strengths and gaps to pick the right service partner.
• Banks and FinTech should provide digital experiences with speed, efficiency, and transparency to meet customer expectations.
• It is important to minimize risk and look at the longer-term return on the portfolio.
• Banks and lenders need to stay on top of their portfolios and proactively address any financial trouble their customers may be encountering.
• Establish a broader breadth and depth of product offerings to increase the lifetime value of customers.
• Trends fueling lending as a service include shrinking availability of capital, understanding data, tighter regulations, and digital transformation.

Quote

“Product innovation in the SMB learning space is going to be extremely important”.

– Preethi Janardhanan

Highlights from the Episode

You’ve had a long tenure within financial services, can you talk a little bit about your journey?

Preethi has a long tenure in the financial services industry, having been in the field for over two years. They started as a developer, utilizing their computer engineering background for coding. However, they eventually transitioned into a product role, working for well-known banks such as Wells Fargo and American Express. In the prepaid card industry, they worked with AccountNow and Green Dot.

Her journey has been organic, as they have a passion for imagining and developing products. In 2020, they joined Rapid Finance, where they helped manage a relationship with the Small Business Administration for the COVID-IDLE program. In the past eight months, her focus has shifted to Rapid Enterprise, where they are responsible for launching the enterprise solution and defining the product roadmap and go-to-market launch for the end-to-end lending service solution.

Can you talk about your experience of having organic career growth by transitioning within roles and between companies and firms, and provide any helpful tips for someone who is looking for their next employment or considering transitioning into a new field?

Preethi has experienced organic career growth by transitioning within roles and between companies and firms. They have found that having a passion for working with people has been key in their transitions. It is important to understand where one’s skills and strengths lie and to be open to upskilling to better understand the industry and business. Preethi has gone from a background in consumer banking and the prepaid card industry to an understanding of the trends and insights in the lending industry over the past two years. They find it helpful to talk with partners, competitors, and internal teams to learn about the problem statements they are facing and to continuously fine-tune their understanding and growth in their careers.

How did Rapid Finance pivot after Covid to offer new products and what can other companies consider when looking to pivot as Rapid Finance did in response to the changes brought by Covid in the financial services industry, specifically with regards to SBA loans?

Rapid Finance is a company that has been lending to small businesses for 15 years. Over the years, they have developed their technology solutions for loan origination and loan servicing. Their goal was to make these solutions modular and scalable with the vision of someday offering them to enterprises. However, this plan was fast-tracked in 2020 due to the COVID-19 pandemic. The Small Business Administration launched a disaster recovery program and they needed a partner to help them reach small businesses quickly. Rapid Finance was able to adapt and stood up an intake application portal for SBA loans in just a week. On the first day of accepting applications, they received 700,000 applications, demonstrating the scale of their ability to pivot in response to changes in the financial services industry.

What was one of the biggest takeaways or specific learnings from the experience of standing up applications within a week, especially during a time when most people were working remotely, for someone leading the process?

One of the biggest takeaways from the experience of standing up applications within a week, especially during a time when most people were working remotely, for someone leading the process was the importance of working effectively with external partners. Rapid, the company involved in the process, had never worked with an external partner before and had to quickly adapt to this new situation. They learned that they needed to not only provide technology services but also act as advisors and partners to bring their expertise to the engagement.

Another key learning was the need to be modular in their approach. The external partner, SBA, only wanted the loan origination platform, and Rapid had to integrate it with their servicing platform. To be more effective in future engagements, Rapid focused on making their lending as a service solution modular, so that businesses could use their strengths and features and Rapid could augment them, leading to a more beneficial partnership for both parties.

How lending as a service influenced your thinking about disruption, change, and innovation in your role as a product lead?

The need for lending as a service has been influential in the product lead’s thinking about disruption, change, and innovation. They have focused their discussion on small businesses, as this is an area of passion for them. They recognize that access to capital quickly is the biggest factor for small businesses and financial institutions aim to nurture and grow these relationships. The rise of payment processing players and big retailers offering financing solutions has been observed, but they cannot often build an end-to-end solution. This lack of ability has caused the product lead to developing an end-to-end platform that addresses the needs for underwriting and credit policies, servicing, and portfolio management. The product lead has also noted the importance of modular and scalable solutions that are tailored to the needs of financial institutions and their partners. This has been a significant factor in shaping their approach to lending as a service.

How is the company capturing customer feedback and researching changes in innovation, especially concerning bespoke solutions and SME expertise for small businesses?

Rapid Response captures customer feedback and researches changes in innovation through various means, including conversations with providers, financial institutions, partners, and engagement with market research agencies. Market research is conducted to gather information about the industry and customer needs. Currently, the method of capturing feedback is primarily through conversations with leaders in the field and other enterprises to understand their pain points. In the future, the company plans to gather feedback through more focused means such as surveys.

How is lending as a service expected to impact B2B businesses and what are the factors to consider when choosing the right service partner for it?

Lending as a service is expected to have a significant impact on B2B businesses. To make the most of this opportunity, B2B businesses need to consider two important factors when choosing the right service partner for lending. The first factor to consider is the business’s objective for providing capital to small and medium-sized businesses (SMBs). For example, an online retailer might aim to provide financing for high-demand items on their platform. The second factor to consider is the business’s strengths and capabilities, as well as the assets that it can bring to the partnership.

By identifying these factors, B2B businesses can find a partner that can fill any gaps in their lending capabilities. Some enterprises may have SMB clients but lack the capital to provide lending, while others may have pools of money but need help with credit analysis and underwriting. Organizations may also have valuable data on SMBs, such as payment processors or accounting software, but lack experience in other aspects of lending, such as servicing or portfolio monitoring. Ultimately, the key to a successful lending partnership is to align the business’s objectives and strengths with the right service partner.

What steps do banks and FinTech companies need to take to improve their customer experience and stand out in a crowded market?

To improve customer experience and stand out in a crowded market, banks and FinTech companies need to adapt to the changing expectations of customers. Today’s customers expect a fast, efficient, and transparent digital experience. To meet these expectations and get ahead of the competition, banks and FinTech companies need to provide quick and efficient services, while also minimizing risk. To minimize risk, it is important to manage the portfolio and stay on top of the financial profile of customers, especially during changing economic conditions. In addition, banks and financial institutions should broaden the range of products they offer to SMB customers, which can increase the lifetime value of these customers and foster long-term relationships. Offering high-value financial products, such as inventory financing or factoring relationships, can also help banks and financial institutions pair capital with core services.

What are the key trends fueling the shift from traditional banking to lending as a service and what are your thoughts on this change?

According to Preethi, several key trends are fueling the shift from traditional banking to lending as a service. The first trend is the shrinking availability of capital for small businesses, which has led to the need for enterprises to find low-cost capital that can be offered to small businesses. The second trend is the increasing importance of data and understanding it. There has been an emergence of data integrators in the SMB space to help with risk management, and there is a need for real-time data analysis and modeling. The third trend is the tightening of regulations in the SMB lending space, with states such as California, Utah, and New York coming out with regulations for commercial financing disclosures. The fourth trend is the digital transformation journey that is coming to lending, which requires lenders to adapt to customers’ expectations for speed, efficiency, and transparency. Finally, the fifth trend is the need for fast and easy access to capital, with customers now expecting faster loan decisions and access to funds.

Is there anything else that you would like to touch on before we wrap the episode?

Preethi touched on the importance of product innovation in the SMB lending market due to the constant demand for capital. They also mentioned Rapid Enterprise, a company that offers lending as a service solution to address the pain points and emerging trends in the industry. Preethi stated that the company stays on top of these trends by having experts in the field and evolving its product roadmap.