What is Lending-as-a-Service?

Lending-as-a-Service is a type of Software-as-a-Service (SaaS) business model but built and designed solely for lenders. The first thing to note about lending-as-a-service (LaaS) is that it’s in the business of technology. It’s not a money lending business. A LaaS company provides the technology to enable lenders to fund their loan business.

A LaaS company doesn’t give out loans itself.

Technology is the heart of modern lending without which a lender has no hope of growth, scale, or effectiveness. 

Nevertheless, building a technology stack needed to lend effectively and profitably is so difficult and expensive. It’s limited to the realm of only the most funded VC backed companies. 

Cloud computing completely transformed how startups are created. The same applies to platform as a service companies. They are transforming business models and industry segments that were formerly beyond the reach of budding entrepreneurs.

Lending-as-a-service is an alternative to traditional lending which provides the technology to lenders to carry out their business online.

It’s not as simple as merely giving out loans online. The LaaS model automates and streamlines the lending process. This makes it possible for borrowers to get loans in minutes. A LaaS platform leverages data and technology to assess loan applications as accurately as possible using algorithms and decision models.

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The rise of LaaS

To understand the growth of lending-as-a-service, we must first understand the problem it set out to solve. It’s not news, nor is it peculiar to Nigeria’s financial sector that banks are unable to adequately cater to the financing needs of individuals and small businesses. 

The loan process that exists in banks can be quite daunting for individuals and small business owners. The groups usually need a quick influx of cash to sort out pressing needs or stay afloat. Banks have to adhere strictly to arduous know-your-customer (KYC) requirements and regulations. These don’t always favor the smaller borrowers; most of whom only want smaller loan amounts to begin with.

Let’s not also forget that the average Nigerian doesn’t have a credit history. This fact makes it all the more tedious and near impossible to access loans from the traditional financial institutions. The rigorous nature of traditional lending in itself poses a barrier to accessing the much needed funds quickly or even at all. 

The average individual doesn’t have the time, patience or required documentation and history to put up with several visits to the bank and a lengthy loan process. 

Lenders understand that solving this problem for borrowers can be quite profitable. However, having to build their own lending tech stack is expensive and requires a high level of expertise. This is where the LaaS model presents itself as a solution to this pain point. LaaS providers have been able to support lenders to radically improve borrowers’ access to credit. 

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LaaS and its possibilities

Through application programming interface (API) technology, LaaS platforms are able to integrate with multiple other platforms. This way, they can offer lenders an end-to-end lending stack. This includes loan origination to the recovery stage. All this is done at a significantly lower cost than the lenders having to build this for themselves.

Functionalities integrated into the LaaS stack include payments, credit bureau and bank statement checks. The LaaS model is very heavy on data (collection, processing, provision). It makes use of machine learning models to support profitable credit underwriting.

This fintech solution doesn’t leave the traditional lenders such as banks out. Banks, also recognize the limitations of traditional lending to adequately service retail credit demand. Banks themselves have also turned to LaaS platforms to deliver them to the consumer credit market.

The functionalities of LaaS technology is also not limited to financial institutions alone. Businesses are also leveraging the tech to provide other forms of credit such as buy-now-pay-later to their customers. This is also done via API integrations. 

Benefits of LaaS

LaaS offers some benefits over traditional software models. Perhaps the most notable thing about the LaaS model is its ability to aggregate data. It goes further to leverage this data such that it strengthens the credit ecosystem. Large amounts of data is gathered in real time. This is then analyzed for trends and key indicators to help lenders make better informed decisions.

Decisioning is a robust part of the LaaS model and a competent LaaS system such as Lendsqr’s LaaS is capable of analyzing thousands of data points to determine the eligibility of borrowers in under a day. This is a process that usually takes traditional lenders weeks in a bid to guarantee quality.

One of the major factors lenders consider during underwriting is a borrower’s credit score. A good credit score generally indicates responsible borrowing behavior and improves a borrower’s chances of accessing loans with better terms.

Credit scores are usually calculated using factors such as repayment history, credit utilization, length of credit history, and existing debt obligations.

Borrowers can improve their scores over time by paying loans and bills on time, reducing outstanding debt, avoiding excessive borrowing, and maintaining healthy credit usage habits. You can learn more about how credit scores work and how they are calculated here.

With a LaaS platform, lenders get to access better quality borrowers. Quality borrowers are those with the highest probability of repaying their loans when due. Lenders can also enjoy a collective immunity and block bad borrowers from the ecosystem.

Additionally, LaaS solutions are easy to implement and are usually end-to-end solutions. Lenders who make use of LaaS software have less need to invest in new hardware. The primary reason for this is that the software is not hosted on their own servers.

Opting for a LaaS solution gives you affordable access to the required tech.

It’s also available at only a fraction of the cost of building your own tech and licensing. Need more reasons to convince you?

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How to access a superior LaaS platform for free

Why try to build your own tech from scratch, faced with uncertainty and crazy expenses when you can simply sign up for free on Lendsqr and access a top quality end-to-end lending solution. Your lending business can be up and running in minutes too. What’s more is you can reach out to growth@lendsqr.com to get a branded mobile app for your business which can be delivered in just weeks.