The past year saw digital lenders enhance their product suites beyond credit, as big banks focused on adding features to their digital platforms to keep customers in their ecosystems, S&P Market Intelligence reported in a December research note.

Lenders move into banking
“Digital lenders are increasingly pushing into nonlending services,” the study noted. “Such expansion is a natural consequence of the digital lenders’ growth. They also enable more cross-selling opportunities, which both lowers the average cost of customer acquisition and augments the lifetime value of each customer.”

The significant growth of digital lenders’ product ecosystems has fueled moves into banking by companies such as SoFi, which branched beyond lending into checking accounts and mortgages. Meanwhile, Kabbage has added services like invoice processing, business loans and a debit card. For small business lending company OnDeck, expanding its ecosystem of products will allow it to grow its customer numbers, particularly among clients it says are overlooked by traditional banks.

“A lot of fintechs, including ourselves, started out being single-product companies,”OnDeck CEO Noah Breslow recently told Bank Innovation. “A digital bank that’s exclusively focused on [small businesses] has a lot to offer the market, and we can build a lot of cool products and solutions that resonate with our customer base.”

See also: OnDeck CEO Noah Breslow on building a community business bank

LendingClub, another large digital lender, is looking to expand into small business banking, the study noted. Banking licences put these companies under greater regulatory scrutiny, but would provide access to insured deposits and a relatively cheap and stable funding source.

To compete with small lenders, big banks have invested heavily in their own tech to expand digital offerings, S&P reported. Meanwhile, regional banks are aiming for the “sweet spot of technological efficiency and personalized customer experience — whether that experience takes place in a branch, on the phone, on the web or in an app,” the study found. 

Large banks grow digital offerings
S&P pointed to efforts to enhance digital account onboarding, including those led by Bank of America, Capital One and Wells Fargo.

“A number of U.S. banks in sizable mergers, including First Horizon/IBERIABANK and BB&T/SunTrust, have touted the importance of scale when announcing their transactions, noting that their larger size will allow for greater efficiencies and necessary investments in technology,” S&P outlined. “Such investments will not come a moment too soon.”

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