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May 3, 2012

Five Consumer Lending Innovations Focus on Improving Borrowing Process

741866_22085759Analyst Insight by Michelle Evans, Consumer Finance Analyst at Euromonitor International

In the aftermath of the global economic crisis, many governments focused on new legislation to protect consumers from predatory lending practices and to educate them about steps they could take to ensure responsible lending. In addition, some lenders implemented new creative approaches to help better determine the credit worthiness of a potential consumer or to speed up the approval process.

Here are some of the latest examples of innovative approaches in the consumer lending space:

Hungary —“Show your credit card” personal loan

Budapest Bank in Hungary is offering a personal loan to any embossed credit card holder – even a customer of another bank – who is willing to present the credit card and bank statements from the last three months as a way to speed up the approval process. Budapest Bank is willing to give the same amount in a personal loan as the cardholder's approved credit card line.

Due to the universally strict risk policies and conservative approach of all Hungarian banks, Budapest Bank is able to save time in the approval process by using the scoring that competitors already have done on a potential customer. One of the benefits is that this innovative approach accelerates the loan approval process and is easier for customers – especially those not familiar with banking institutions – because consumers do not have to go through a long and arduous investigation into their financial situation.

Mexico — Save and buy home loan programme

This home lending programme offered by BBVA Bancomer considers the saving capacity of the consumer instead of income. The loan is authorised after a period that ranges from six to 18 months in which the client makes monthly deposits that will be used as an eventual down payment. The product appeals to those who can't provide proof of employment, such as the unbanked population, freelancers or people who change jobs frequently.

This product offers an alternative for customers searching for a home loan by allowing the unbanked the ability to prove their payment capacity without needing a third-party recommendation from a national credit bureau, for example. The product will likely be a success because it targets many people who have the payment capacity to purchase a house but cannot meet the traditional lending standards.

Romania — Apply for consumer loan via text or web

The banking system in Romania came out with more and more refinancing programmes to attract the already credited population and especially the percentage that had not defaulted on their debts. The competition is growing fierce in Romania between the different lenders and Bancpost was one of the pioneers addressing the issue in 2011.

One of Romania's largest banks, Bancpost, has introduced a new refinancing consumer loan that targets clients who already have debt with the bank or other banks. Perhaps, the most unique part is that Bancpost provides the interested parties with the ability to apply via text or the bank's website in addition to the more traditional means of applying for a new loan through brick-and-mortar locations.

The BRAVO refinancing product is a pseudo reward for Romanians who have fulfilled their contractual obligations and kept track with their monthly credit instalments. It targets the working middle class. Applicants must be between the ages of 23-65 and be able to provide proof of a constant paycheck. With the BRAVO credit, customers get the chance of decreasing their monthly obligations by up to 30%. The product is available in both RON and EUR and for a duration of 12 to 84 months.

UK — Door-to-door consumer lending

International Personal Finance plc, is a UK-based lender, that provides small-sum, short-term unsecured cash loans with an optional home-collection service provided by IPF agents. It operates in emerging markets where demand for credit is growing, but the markets remain underserved, including the UK, Poland, Romania, Hungary, the Czech Republic and Mexico.

The typical customer has slightly below average income, who wants to borrow relatively small sums of cash in a quick and transparent way. Most loans are £200-500 and have six-to-12-month repayment terms. Customers are generally not charged any default interest or fees as a result of late repayments.

What makes this lender most unique is that loans are arranged and delivered by IPF agents in the convenience of the customer's home at a time that suits them. Typically new customers are lent smaller amounts over shorter terms and as that customer shows the ability to pay, IPF may offer larger, longer-term loans. The agents deliver the loans and meet customers each week in their home to collect repayments. If the customer prefers, repayment can be made via a bank money transfer. Part of the goal of the in-house meetings is to encourage long-lasting relationships with customers and to bring the unbanked into the financial mainstream.

Colombia – Credit fairs reach the masses

Banks in Colombia have organized credit fairs to raise brand awareness and issue a massive amount of loans to potential borrowers. These are events lasting one or two days where banks promote all their lending products to potential customers or other interested people. They take place in high traffic areas, such as large shopping centres or in other larger fairs in Corferias. The banks offer additional benefits to borrowers taking their credit at these events, such as reduced interest rates and prices.

Credit fairs are organised mainly by brands such as Davivienda and Multibanca Colpatria, but there is one annual event called Expoinversión in Corferias where consumers can find a wider offer and plenty of options including education and auto lending. The most common format for credit fairs in Colombia are for mortgages. Banks, such as Davivienda, took advantage of its relationship with its related subsidiary, Constructora Bolivar, to offer construction projects with the interest rate subsidy offered by the national government. Davivienda and Constructora Bolivar are both owned by Bolivar Corporate Group.

To read about more innovations happening in the consumer lending or financial cards space, read the Innovations in Consumer Finance global briefing.



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