In the past, all financial services were provided by traditional financial institutions. However, that’s not the case nowadays. There is an emerging trend where financial services are being created by a fintech enabler and then distributed by a client company. Oftentimes, these companies that are doing the distribution aren’t even remotely financial institutions.
If you’re curious to know more about fintech enablers, we wrote an overview about the concept here. This article will focus on the way lending services are embedded into other services.
What is credit-as-a-service?
Also known as lending-as-a-service (LaaS) and embedded lending, credit-as-a-service (CaaS) enables companies to provide loans. Providing a lending service involves the process of credit scoring, credit underwriting, fraud detection, loan disbursement, and repayment collection.
CaaS companies take care of these processes for their clients. At the same time, clients will be in charge of marketing the service, attracting borrowers, disbursing the loan, and collecting the repayment.
Advantages of CaaS
One of the advantages of CaaS is that it provides alternative data. In most cases, the clients are companies that have collected enormous amounts of data from their customers, and CaaS providers come in to help figure out how to utilize such data to determine how credit-worthy customers are.
The data includes online behavior, activities on social media, call records, subscriptions, and more. This type of data differs from the data that conventional banks and financial institutions use for their credit scoring.
Another great advantage of CaaS is digitalization. Many traditional financial institutions still handle loan applications and credit scoring processes using pen and paper. Therefore, CaaS providers are not just helping digital-native clients to provide loans, but also helping conventional banks and non-banks to digitize their lending services.
Notable players in this field
Ezbob: As a pioneer in the rapidly growing LaaS sector, Ezbob started in 2011 in the UK. It offers an open platform that enables financial institutions to build, launch, and operate financial products for their customers, drawing on the data-rich open banking environment. The company was able to reduce loan-servicing costs by up to 80%, allowing SME customers to receive a lending decision in as little as seven minutes with funds transferred on the same day—this made Ezbob a game-changer in the lending sector.
Amount: Established in 2019 in the US, Amount has become a unicorn in less than two years. Similar to Ezbob, Amount helps financial institutions go digital in months. HSBC, TD Bank, Regions Bank, Banco Popular, and Avant are some of Amount’s clients. On the other hand, Amount also enables merchants to offer installment options under their brand. Recently, Barclays US Consumer Bank became one of the first major banks to partner with Amount to provide this type of white-labeled installment service.
Liberis: Founded in 2007 in the UK, Liberis has provided over GBP 500 million (USD 672 million) in financing to 16,000 SMEs across Europe, the US, and the UK. It has then shifted toward B2B2B, now predominantly partnering with marketplaces, software providers, and acquirers such as Worldpay from FIS and Global Payments. These partners integrate with Liberis to offer personalized pre-approved revenue-based financing to their end customers.
Roostify: Established in 2012 in the US, Roostify is a LaaS company that focuses on mortgage lending. Santander, TD Bank, and Colonial are among its clients. They utilize Roostify’s technology to analyze behavioral data and digitize their mortgage application process.
Linear FT: Linear FT is focused on helping banks reinvent the business lending process. It provides a combination of software, analytic insights, and professional services to deliver a game-changing digital experience. As a wholly owned subsidiary of OnDeck, one of the largest online small business lenders, Linear FT draws on the heritage of USD 10 billion loaned over the last decade.
Crezit: Crezit is one of the very few CaaS startups in Japan, if not the only one. The firm focuses on connecting traditional consumer loan lenders to digital native tech companies. Recently, it announced a partnership with one of the largest consumer lending companies in Japan, ACOM.