Credit Summit 2015 - Nostrum Group presentation by Richard Sunman, Head of Commercial, 26-3-15 An overview of the impact on the lending industry of the advent of digital finance.

1. THE RISE AND RISE OF DIGITAL LENDING

2. www.nostrumgroup.com @nostrumgroup
AGENDA
• Digital lending
• The demand for automation
• Consumer attitudes to digital lending
• Considerations for lenders
• Attracting and retaining customers

3. www.nostrumgroup.com @nostrumgroup
ABOUT NOSTRUM • Provider of digital loan management software
• Cover full customer lifecycle
• Every 10 seconds someone applies for a loan using
Nostrum’s systems
• 95% of loans advanced are paperless
• Over 25,000 applications processed per month
• 95% of successful applicants get funds in their bank
accounts the same day
• We’re making lending cheaper, faster, and safer

4. www.nostrumgroup.com @nostrumgroup
AUTOMATION OF
LENDING
• Digital disruption is a reality in most markets and
lending is no different
• “There is already widespread recognition of the need
for more modern, flexible technologies for data
management which can help banks develop innovative
products and alternative business models more quickly
and provide more efficient controls and risk
management.”
KPMG, January 2015
1. KPMG The Changing World of Money, January 2015

5. www.nostrumgroup.com @nostrumgroup
REALITY BITES FOR
MAJOR UK BANKS
• The big five banks (Barclays, HSBC, Lloyds, RBS
and Santander) could lose over 10% of their lending
market share from 2010 to 2020, if current growth
rates of alternative finance continue2
• A third of bank executives believe upgrading and
simplifying core technology platforms is the single
most important IT investment to improve customer
experience1
• McKinsey has estimated that approximately half of
the core 700 end-to-end processes in banks can be
automated
• Digital banks start with an automated model
1. KPMG Banking Industry Outlook Survey, October 2014
2. KPMG The Changing World of Money, January 2015

6. www.nostrumgroup.com @nostrumgroup
CONSUMER MEDIA USE
HABITS MUST BE
ACCOUNTED FOR
• Mobile and social are key drivers
• 83% of adults now go online at any time, using any type of
device, in any location.
• Tablet adoption trebled to 17% between 2012 and 2013
• 33% of mobile users now say they buy things via their phone
(vs. 23% in 2012)
• 34% use their phone to check their bank balance
(vs. 25% in 2012)
• 56% of people who buy things online say they often read
user reviews
Sources: Nostrum Consumer Attitudes to Digital Finance research 2013 & 2014
Ofcom Adults’ Media Use & Attitudes Report – April 2014

7. www.nostrumgroup.com @nostrumgroup
NOSTRUM’S RESEARCH:
CONSUMER ATTITUDES TO
DIGITAL LENDING
• ‘The Emergence of the Digital
Borrower’
• 2002 consumers surveyed
• 991 men, 1011 women
• Balanced UK representation

8. www.nostrumgroup.com @nostrumgroup
5 TYPES OF ONLINE
CONSUMER
Digital natives
Desirable regularsFuture natives
Capable massesTraditionalists

9. www.nostrumgroup.com @nostrumgroup
• Loves her iPhone and iPad
• Manages her life online and via apps
• Hasn’t set foot in a bank for several years except when her
Gran gave her a cheque for her birthday, which took her
several weeks to get round to paying in
• Doesn’t need to borrow money very often but is confident
handling her finances online
• Lately she’s been experimenting with various contactless
payments applications
Helen, 23 years old
DIGITAL NATIVE

10. www.nostrumgroup.com @nostrumgroup
Tom, 42 years old
• Has been with his bank for over 20 years
• Owns a smartphone but prefers to surf the web from
his computer
• Manages his bill payments online but if he has a query
he likes to ring the call centre
• Uses comparison sites when he is renewing his home
and car insurance, but he only takes out policies with
companies he has heard of
• Has a facebook account and likes to read what his
friends are doing, but rarely posts anything
TRADITIONALIST

11. www.nostrumgroup.com @nostrumgroup
Dave, 25 years old
• Organises his life via his smartphone
• Keeps in touch with his friends via Facebook,
WhatsApp and Instagram
• Orders his groceries online each week and does his
clothes shopping on sites like ASOS
• Manages his banking online but when it comes to
borrowing money he likes to speak to someone at the
finance provider
• Feels his limited knowledge means that’s the sensible
thing to do, although he’s gaining confidence as he
gets more experienced
FUTURE NATIVE

12. www.nostrumgroup.com @nostrumgroup
Gina, 40 years old
• Spends a lot of time online and loves a deal
• Regularly visits discount websites and only buys
clothes from her favourite retailer when they have an
offer on, which she knows they will do every few
months
• Uses comparison websites and will growth the
cheapest price available, irrespective of whether or not
she’s heard of the brand
• She’s influenced by online reviews and ratings
CAPABLE MASSES

13. www.nostrumgroup.com @nostrumgroup
James, 45 years old
• Confident managing all aspects of this life online,
particularly his finances
• Has bought numerous items on credit and has taken
out several loans in recent years
• Very familiar with the borrowing process and is happy
to take out and manage loans without talking to anyone
or visiting a branch
• As a regular borrower, he finds it useful to use an
online app where available
DESIRABLE REGULARS

14. www.nostrumgroup.com @nostrumgroup
DEMAND FOR
AUTOMATION
• Consumers’ demands of their bank are changing at
an increasing rate
• Flexibility, transparency, and fast responses across
a range of communication channels are what
consumers are looking for
• Almost all research into loans is done online, with
84% using a computer1
• 60% of 18-24 year olds who apply for a loan do so
via a digital channel vs 18% of over 55s2
• Children aged 12-15 only conduct 3% of their
communications on the telephone - 94% of their
communication is text based1
1. Ofcom
2. Mintel Loans UK report January 2015

15. www.nostrumgroup.com @nostrumgroup
WHAT DO LENDERS
NEED TO CONSIDER?
Automation
• Providing interactive tools for the full loan cycle including
loan repayments / scenarios
Innovation
• eg giving the customer a credit line, available online or via a
digital wallet that could include debit card, credit card and
loans
Data
• Ease of obtaining data vs regulatory requirements
Skills gap
• Digital and data-related skills are typically the ones in
demand
• This is increasingly a social issue as much as a business
one

16. www.nostrumgroup.com @nostrumgroup
KEY SUCCESS
FACTORS FOR DIGITAL
LENDING
Customer-led
• Needs to be considered primarily from the
perspective of the customer, not the lender
• This is not just about digital products and services, it
relates to the entire customer experience
Technology driven
• A digital lender needs to be able to offer an online
interface and interaction that can replace the
interaction of a conversation with a person
• The positive legacy of payday– technology and
immediacy – is increasingly being demanded and
harnessed in other forms of lending

17. www.nostrumgroup.com @nostrumgroup
IMPORTANCE OF
CUSTOMER
EXPERIENCE
• 86% internet users say they give only the minimum amount of
personal information required online
• 42% say that they are happy to provide personal information
online to companies as long as they get what they want in
return
• Providing a seamless online process is key – online lenders
should be looking to create an experience that requires minimal
customer data
• Consumers still prefer to resolve issues via offline channels
• The challenge for online lenders is to minimise these instances
Sources: Nostrum Consumer Attitudes to Digital Finance research 2013 & 2014
Ofcom Adults’ Media Use & Attitudes Report – April 2014

18. www.nostrumgroup.com @nostrumgroup
SOCIAL DATA • Lenders will increasingly use social data to assist their
underwriting decisions
• 60% of consumers we surveyed said they would prefer lenders
not to do this
• This month the FCA finalised its guidance on social media,
following its first period of consultation since 2010
• We expect social data in underwriting and affordability
assessment to become a focus of the regulator
Sources: Nostrum Consumer Attitudes to Digital Finance research 2013 & 2014
Ofcom Adults’ Media Use & Attitudes Report – April 2014

19. OUR SOLUTION - VIRTUAL FINANCE

20. VIRTUAL FINANCE

21. www.nostrumgroup.com @nostrumgroup
THE FUTURE • The next 12 months will be a defining period for online lenders
• Adoption of technology over the entire consumer lifecycle is
inevitable
• The digital borrower is set to be the dominant borrower in 2015
and beyond
• Lenders who stay in tune with consumer attitudes and maintain
visibility will be well-positioned to be their lender of choice time
and again
Sources: Nostrum Consumer Attitudes to Digital Finance research 2013 & 2014
Ofcom Adults’ Media Use & Attitudes Report – April 2014

22. LET’S MAKE LENDING, CHEAPER, FASTER AND SAFER
Putting the customer in control of their finances, any place, any time and on any device.
www.nostrumgroup.com @nostrumgroup