Michal Smida, Founder & CEO, Twisto
- What are the key trends you’re seeing in lending?
Q2 was characterised by a conservative approach and a very proactive reaction to managing credit risk. There was substantial tightening in approval rates for onboarding new clients – this in part is due to the uncertainty of the potential impact of unemployment, as well as the increased challenge of gaining access to capital markets. We saw as much as 50% reductions in approval rates across the industry.
There was also a bigger focus on collections and managing risk in the existing portfolio, this includes more proactive and frequent communication with clients. Q3 has seen an easing of the above measures as prime client portfolios in the EU have recorded positive non-performing loan (NPL) performance. In some cases, customer payment behaviour has improved vs. pre-COVID, with some lenders recording their best performance to date.
- The 2008 financial crisis was the catalyst for alternative lenders. Do you think the current pandemic will be a similar agent for innovation and change, and if so, what might it look like?
The shift to digital has been an ongoing theme since 2008, which gave rise to many great fintechs, but also pushed banks to digitalise rapidly. What the current crisis has brought is increased customer adoption of what has already been in the market for some time. So we don’t see the change in the product offerings of financial institutions, but rather a change in customer behaviour and their willingness to use digital channels, which are not only much more convenient, but also safer and quicker to use in comparison to traditional offline processes.
- What are the biggest challenges for lenders in the next 12 months?
Maintaining and further managing risk performance. Q4 will be critical in proving the resilience of the customer base. As governments have stepped in to support businesses and the wider economy, the possible impact on unemployment has been delayed.
This in turn can lead to credit deterioration once the support stops. Venture capital and debt markets effectively shut down in Q2, with reopening noted in Q3. As many lenders require additional capital to sustain growth momentum, the key challenge will be attracting capital from investors who became even more selective and cautious.
- What do lenders need to prioritise to deliver a better customer experience?
It’s mostly about finding a sweet spot between a smooth customer journey and all the requirements coming from different stakeholders around areas such as risk factors.
Many financial institutions are not so brave in terms of challenging the status quo of the current financial conditions. We are doing our best to make bold decisions that might make a difference at the end of the day.
- You have already started to make the transition to lending 3.0. Why did you want to build a card programme?
Creating a payment card was the logical next step in fulfilling our vision of simplifying daily payments for customers. We started with simple deferred payments “Buy now. Pay later” for e-commerce, but in an age when the overwhelming majority of payments still occur offline, it was necessary to also enter that market and provide an omni-channel solution. The key was to have a better app and overall experience than traditional card issuers.
This was demonstrated in our recent launch of the Twisto app and card offering in Poland, which has been well received by customers, with over 70,000 sign ups and over 20,000 cards ordered in the first 30 days from launch. We are very pleased with the speed of execution through this launch, and strategic partners like Mastercard and Marqeta have been fundamental to enabling the success of the technology. We look forward to exploring expansion opportunities across the EU on the back of this solution.
- What’s your vision for your card programme and how it will help you solve your challenges and deliver a better customer experience?
At Twisto we believe that having a plastic card in your wallet is already outdated. Because of this, we’ve committed to our goal to stop issuing plastic cards by 2025. We believe that the future is paying with mobile phones. Thanks to Marqeta and our Digital First certification from Mastercard, we’re one of the first companies in Europe, or even the world, who doesn’t have to issue physical cards.
