A path to profitable lending, with Maik Taro Wehmeyer
"Profitability is paramount for the global lending industry in 2023. But for lenders to increase profitability under the new status quo, much of the industry must undergo change. To stay ahead of the game, lenders need to fully enable every level of their business to react quickly to market changes and proactively steer their risk selection."
Taktile is using cutting edge data tech to allow businesses to build, run and evaluate automated decision flows quicker and more data-driven than ever before. You can't guess your way to the right decision, as they say. That's right in the target area of this show and yet, we're largely skipping over their skills for this episode, and delving instead into the results of their first annual State of Lending Report. When people ask me about this show, one of the first questions they ask is about reach. And my answer is it's small. But it is also mighty: the most common job titles in my audience run, in descending order, from CEO to founder to co-founder to Managing Director to Credit Manager. Quality over quantity and all of that.
That's also one of the reasons I love this State of Lending Report - at a time we need it more than ever, it builds a guiding star from the combined insights of global lending leaders, half of whom are credit leaders and another quarter of whom are CEO, CPOs, or CTOs. It's a treasure trove, and today we going through it with Maik Taro Wehmeyer, Taktile's co-founder and CEO.
You can - and should - download your own version of the report over here: https://www.taktile.com/articles/taktile-s-state-of-lending-report-reveals-how-lenders-plan-to-grow-more-profitably-in-2023
Or read more about Taktile over here: https://www.taktile.com/
If you're more socially minded, you can - and should again - follow the Taktile journey over on LinkedIn (https://www.linkedin.com/company/taktile1/)
Since we're talking bout LinkedIn, you can - and should - follow me there, too: www.linkedin.com/comm/mynetwork/discovery-see-all?usecase=PEOPLE_FOLLOWS&followMember=brendanlegrange
Otherwise, my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24
If you have any feedback or questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.
Oh, and Taktile are one fo the big sponsors of the big AltFi Lending Summit coming to London on the 18th of October - register to meet the team there: https://www.altfi.com/events/altfi-lending-summit-2023
Regards, Brendan
The full written transcript, with timestamps, is below:
Maik Wehmeyer 0:00
The world runs increasingly on automated decisions, and lenders that are the quickest to iterate and update their credit policies are the closest to achieving their performance goals.
But that said, many lenders are resorting to guesswork still, and they're reliant on other teams to get stuff done, which is slowing them down.
Brendan Le Grange 0:27
When times are good, and capital is cheap, growth can see more important than profit.
But when the clouds gather, and investors get the pencil sharpeners out, businesses really need to start paying their own way. And I don't mean to focus on profit instead of growth, no profit needs growth, and cost efficiencies and risk reduction. That's not the easiest equation to balance. So luckily, we have lending CEOs and Credit Risk Heads sharing their insights in Taktile's first annual State of Lending Report.
Welcome to How to Lend Money to Strangers with Brendan le Grange.
Maik Taro Wehmeyer, co founder and CEO at taktile, welcome to the show.
You can't guess your way to the right decision - Maik, before we get into the State of Lending Report, would you mind giving us a quick intro into the Taktile business and what you are looking to achieve there?
Maik Wehmeyer 1:26
Thank you, Brendan, first of all for have me on the show today.
So I mean, the premise is clear, the world runs increasingly on automated decisions. And as we collect more and more data and become better at digesting it through machine learning and AI, we will make more frequent and more instant decisions in all aspects of life - from deciding who has to verify their email address to deciding who gets a loan. And at the same time, those who are responsible for decisions don't have an easy way to build, run and evaluate their work.
Most decisioning systems rely on an opaque patchwork of siloed teams and data streams with insufficient oversight and control.
Many decisions, therefore, back to the tech line that you just mentioned, rely on guesswork and instinct. And this leads to bad decisions, and costly mistakes and disappointed customers.
This is why we founded Taktile in 2020 to change that.
Taktile has offices in New York City, London, and Berlin and serves as the backbone for risk, for pricing, and fraud teams across financial services. It enables decision authors to enrich internal signals with data from our rapidly growing data marketplace and flexibly express their desired decision logic - and all of that without actually requiring engineering support.
There are more than half a million of decisions on the platform every day. And those decisions are made by customers that go from India to Mexico, Nigeria, Kenya, France, Germany, the UK, countries in Eastern Europe, and our most important our core market, the United States.
Brendan Le Grange 3:27
There's so much there that we are going to be deep diving this in a Taktile specific episode in a couple of weeks. So everybody who's interested in really learning what's happening there, can stay tuned for that - but we're choosing to start by focusing on some broader insights via your State of Lending Report.
The first annual State of Lending report gathers insights from risk teams and risk experts from around the world could hardly have come at a better time, given the amount of unpredictable forces and activities we have going on around us.
So please start by telling me what was the inspiration behind getting this in place and releasing it for those of us in the industry that might want to have some guiding stars to follow.
Maik Wehmeyer 4:07
Every time we speak to lenders, it's clear that the industry is changing rapidly, that the old ways of working aren't cutting it. And at moments like this, it's really helpful to take stock and actually see how things are evolving. And I personally love surveys, I read a lot of them.
And we wanted to create something for the community that actually could provide a touch point and also serve as a guide for those who are trying to navigate the industry. And what you just mentioned all these unpredictable forces that are flying around the world at the moment.
Brendan Le Grange 4:46
And Maik, when we first met in person, it was just before you released this report, so I hadn't seen the results and given the surrounding market chaos, I wouldn't have been all that surprised if it turned out that the main theme was slightly gloomy... but this is not a report called something like 'running away from risk'. The report is titled Paving the Path to Profitability.
Maik Wehmeyer 5:07
I don't feel gloomy about the future of lending at all.
And actually, it seems like most of the industry fears pretty positively too. 84% of survey respondents actually feel optimistic about the future. But you're right, it's definitely a period of change, and lenders are feeling the squeeze as interest rates rise, and need to refocus from growth at all costs to profitability.
And we are already seeing, right now, leading lenders adopting new data sources and software providers to enable every level of their business to react quickly to market changes and proactively steer the risk selection to actually gain a competitive advantage and to achieve profitable growth.
And, back to your question, that's why we wrote this survey, to also help other lenders understand the industry and to the title, pave the way forward.
Brendan Le Grange 6:10
Now, Maik, the report has a lot of deep insights, only some of which we'll have time to cover today, but before we do that, what are the headlines?
Maik Wehmeyer 6:19
One thing is really clear, profitability is paramount.
To put it simply: new pressures are placing a squeeze on lenders, forcing them to re evaluate the strategy and prioritise profitability, high interest rates make obtaining your capital more expensive, and on top, securing your debt facilities more challenging, but...
...it's also a unique opportunity in my eyes, for lenders to adapt, to change and to innovate.
But if you ask them how they plan to do this, you reveal a key dilemma. And that is most lenders need to decrease default rates, and lower customer acquisition cost, while also achieving significant growth goals. Those things are almost contradictory. You know, analysing responses helped us to uncover best practices, namely that lenders that are the quickest to iterate and update their credit policies are the closest to achieving their performance goals. So the lenders that can adapt and act with the most agility are the ones actually positioned to succeed.
But that said, Most credit teams are not sufficiently enabled to do this. So they are relying on complex or outdated decision infrastructure and just cannot easily self serve.
Brendan Le Grange 7:39
Yeah, so decrease defaults while lowering acquisition costs and growing at the same time, not an easy thing to do.
And we're going to look at at how that's possible. I think you've touched on a few points here, but how are these experts, I guess, in practical sense, looking for profitability along this tricky path?
Maik Wehmeyer 7:57
So one main avenue is by optimising customer acquisition costs and default rates to improve profitability fast.
Essentially, the goal is to improve more customers safely. At the same time, 35% of lenders want to increase their portfolio growth by more than 10% this year, particularly in Africa, where 75% of respondents want to increase their portfolio growth.
Then another one, which we do see and hear from a lot of our customers in the B2B space. Automation is a key profitability lever, and there are 56% of respondents expressed the desire to increase the automation levels. And this is a highly effective way to, on the one hand, reduce operational cost, but also to speed up the credit decisioning process, then, ultimately, the key to all of this is investing in agile by credit decisioning.
And there our research shows that those that have the ability to make credit changes to fastest, tend to be closest in achieving their goals.
So for some lenders, it can take weeks, months, or even a year to change their credit policy. And I mean, like you did talk with, you know, a lot of your different guests on the show about that over the last couple of months. It's just not that easy to change a policy. And we do see that data that lenders with lengthy processes for changes reported the biggest desire for improvements in the outcomes. And that makes sense.
Meanwhile, those who could adjust their credit policies in days or hours expressed that they do not have significant room for improvement. So for me, it all comes down to agility, which is how fast can your teams respond to the market, act proactively and iterate to improve performance?
Brendan Le Grange 9:51
So we're not talking about one year becomes every six months, but really doing things within within days to make decisions that fit within a world that is changeable. But I think it's also about the people side of things. How you're going to have a team understands the need for change quickly that understands what agile means.
Maik Wehmeyer 10:13
Agility is critical to being able to respond to today's volatile market. Lenders need to be able to be both proactive and reactive to changing interest rates, surges in demand, and even adopting new technologies. So in my mind, when we talk about agility, we talk about three things. Number one, that they have empowered credit risk teams to fully own risk selection.
That means many credit and risk teams are entirely dependent on engineering teams to make changes, and you have one team designing policies, and one team to implement it.
But we all know getting engineering resources is painful, and it can deeply slow down the process. Then second, simple to integrate new data sources. Now, building a data integration is very time consuming, and costly. And it generally requires huge amounts of engineering resources, if you think about agility, that you've been able to assess the impact of your changes. So once you add a new data source, or you implement a new policy, can you actually see how well it compares to your existing policy? Can you run experiments? Can you run an A B test?
Brendan Le Grange 11:37
your respondents talking about what they want to do what they need to do to be profitable? Did they give you any data in terms of how well equipped they felt to be able to do this, how they felt the broad organisation systems in which they worked, were capable of delivering that sort of agility.
Maik Wehmeyer 11:53
It's something I was really curious about, too, because of course, you're looking at it from the outside, and you feel like, that's not the way it should actually be. But it turns out that poor credit decisioning infrastructure is slowing down a lot of lenders - if I look into the report, 33% actually find their dependency on engineering teams to be your blocker.
That's number one, they cannot change things. 41%. identifying new data sources is one of the biggest challenges they face and another 33% report difficulty in assessing the performance of credit policies, and making it impossible to improve the accuracy of the risk assessment in the data driven way. And it's needed if you really want to iterate fast.
And then the last point of data I want to give on this chapter is that 39% of the respondents feel that they struggle to achieve the right degree of automation, and I must say that all together, it looks like that, you know, many lenders are resorting to guesswork still, and that they're reliant on on other teams to get stuff done, which is sorting them down.
Brendan Le Grange 13:02
If we look at the more positive side, or kind of what respondents are wishing for, what are they telling you that their credit system should be enabling for them?
Maik Wehmeyer 13:11
Yeah, I love the wish list. Always ask our customers, What's your wish list. So we look at the data. The big thing, as I've said before, is that credit infrastructures need to empower credit teams to self serve, which means in detail that many lenders right now have in our systems that they've built over the years to get the job done.
Those systems are highly reliant on engineering teams to get things done, whether that's to add a new data source to once you mentioned, there's so many new products b2b Buy now pay later, there's so many cool new data vendors out in the world. But it doesn't necessarily mean that you have access to the data in your system, or even things like back testing credit policy, you would assume that something which everyone can do.
That's very high up on the wish list of many, many lenders out there, then 71% rely on engineers to create or adjust credit policy logic.
And that's a severe limitation for credit teams. As a credit team, you are in charge, you know, what do you want to do you have a strategy. But if the 71% of the respondents saying that rely on engineers, it looks like the industry is not as self sufficient as it should be. And then what we've seen in this study, and also with our customers is that once credit teams are empowered to fully own the decisioning process, that companies are able to move with agility and able to improve performance marketing, and I think we will see lenders that embrace modern decision engines and start to gain a true competitive advantage.
But of course, I'm somewhat biassed here to say that!
Brendan Le Grange 14:54
Of course, but that doesn't mean you're wrong.
Maik, before we talk about the overarching final findings, there are as we've gone through kind of a lot of numbers in here and a lot of insights from people who really understand the industry.
So some of the people listening may actually like to go and download the report themselves have a look through that in their own time, which is a good place for them to get their hands on a copy of Taktile State of Lending Report.
And then because a lot of people will be wondering, you know, in their organisational budgets, where are your respondents saying they are putting their investments? Where should my listeners be thinking about investing their budget in the next year or two to make sure that they can become as agile as possible?
Maik Wehmeyer 15:37
Yeah, to quickly start with the report. So if you visit www.taktile.com you can find a report easily on our own page. And our team is also happy to advise any lenders looking to improve their credit decisioning infrastructure, we work with experts from around the world, and can share their insights.
Now, on that note, what we've seen from credit teams that partook in the survey is that the biggest goal for 2023 is to add new data sources. That's no surprise, it empowers lenders to more accurately identify the right customers, and lower the customer acquisition cost. It's a key lever in improving automation.
The second most popular response, however, did surprise me because 55% want to invest in infrastructure improvements that empower them to add or just credit logic. And that's a basic piece of running your credit decision engine. And then the third, most popular investment was similar, it's being able to adjust thresholds, and lenders are looking to empower the teams to iterate on their own.
So ultimately, it's impressive that 77% want to better enable their credit teams to make credit policy changing, that's a that's a huge number. And finding a moderate credit decision engine will go a long way toward empowering lenders to reach their goals.
Brendan Le Grange 17:06
And this is about releasing the power of credit teams. Let me leverage this asset that I have did, the whole report itself ends. For me, it was slightly unexpected, but a very reassuring line that 84% of your respondents remain optimistic about the lending industry this year, as you said right up front.
Actually, this is a strong message of positivity,
Maik Wehmeyer 17:28
It does end positively.
It's a very exciting time. And that's also for me when we started the survey. That's one of the main things I really wanted to know because a lot of our customers asked about a lot of our investors asked about it and getting that reassurance from within the market. It's one of the most exciting outcomes of the survey, actually, for me.
And we are amidst a huge transition in lending, one that is powered by access to your data sources and new technologies. And the lenders that adopt those now that are better able to assess borrower risk and cater to an untapped customer segments are in my eyes position not only to improve their profitability, but they will build a moat that makes them hard to beat.
Brendan Le Grange 18:16
I'm slightly looping back a bit, I guess, but again, returning to my my credit bureau roots, I was very surprised to see the amount of interest in new data sources. You know, I come from a world where we are so conditioned to think, oh, the credit bureau is the people need and then they're going to need one or two little bits of data on the side just to personalise their their product offering. And then thinking like, okay, most people have access to this. But actually, lenders are out there looking for more data sources, looking for more data sources, not just to use the data they want differently.
So this is still a world where gathering new data is important. We gathering new data is a source of sort of advantage in the business space. So data providers have a huge role to play going forward alternative data, alternative scores. There's a lot of innovation happening in that space.
And, Maik, it's been a pleasure having you on with this combined insights of a world worth of lending leaders. Again, if anybody listening would like to learn more about tactile, and the work you're doing there with your AI systems, or if they want to read this report, where can they go to find tactile online and where can they go to to follow your stories as they develop?
Maik Wehmeyer 19:27
Thank you, Brendan, for having me on the show. So for everyone who wants to do a deeper dive above everything that we talked about today, go on www.taktile.com is where you find all the information and one little nugget at the end. We are planning to do this annually. And we want to track the future of the industry. So please keep your eyes peeled in early 2024.
Brendan Le Grange 19:51
It's been a pleasure. Yes, I was very excited when I see first annual because I think it's rare that you get such a concentration of CEOs and credit heads to share their insights. So standing alone, incredibly important for the industry emits the flux it's going through. But even more so once we have a tool that we can track over time, and we can see in 2024 2025, how are those priorities changing?
And anybody listening to this show would have something to learn from that report. So I'll put it in my show notes as well. But definitely recommend listeners going finding a copy and yeah, following Taktile
Maik Wehmeyer 20:29
Amazing Thank you Brenda was great fun.
Brendan Le Grange 20:32
And thank you all for listening.
Please do look for and follow the show on your favourite podcast platform and share the updates widely on LinkedIn where lending nerds are found in our largest concentration. Plus, send me a connection request while you're there.
This show is written and recorded by myself Brendan le Grange in Brighton, England and edited by Fina Charleson of FC Productions.
Show music is by Iam_wake, and you can find show notes and written transcripts at www.HowtoLendMoneytoStrangers.show and I'll see you again next Thursday.