Lending as a Service (LaaS) and Enhancing Your Fintech Product

Lending as a service, more commonly known as LaaS, is one of those solutions that have all the cards dealt to bring up a digital revolution in finance. Previously, taking a loan was a notorious, rigorous process of endless queues and document verifications. Now, with digitalization, lending can take up from a few moments to a few seconds due to a robust KYC process and automation. Hence, users prefer faster operations, and it becomes a necessity for businesses to implement quicker processes into their workflow. 

According to Precedence Research, peer-to-peer lending has continued to grow over the last few years, reaching $139.8 billion in 2024, and will continue to grow, with its market size expanding to $571.6 billion by 2030. So, in this article, I will focus on lending as a service, its benefits, challenges, and top lending platforms. Without further ado, let’s get started!

Understanding Lending as a Service

Before discussing lending as a service in more detail, it is important to mention that it is sometimes also referred to as marketplace lending. This software is a sub-category of banking as a service, or BaaS. BaaS, in turn, is cloud-based APIs that together are utilized to help business owners build financial services and, in some cases, digital banks. 

Much like BaaS, LaaS is a cloud-based multi-tenant platform created uniquely for loan management. In simple terms, it is software that allows businesses to lend finances without actually building a lending infrastructure but rather getting an API to integrate with for these purposes. This way, a business can get profits and fully focus on its core services rather than dissipating the focus on creating a fully independent solution for one service alone.

So, overall, it would be safe to say that LaaS is beneficial for the financial services sector as it offers inherent competitive advantage and business benefits to those integrated with marketplace lending.

How LaaS works

From a business perspective, LaaS’s workflow simplifies the lending process. Let’s look at its step-by-step breakdown. 

1. The first step is to choose a provider. Integrating with an API means you need to choose a reliable provider to ensure you’re getting the best from the service.
2. Then, of course, integration with a lending API with the help of the development team.
3. The next step is the loan application, which a user takes directly from your platform to apply for a loan. 
4. Next comes the verification step. Here, the user is verified for the loan based on several criteria. This step of the process needs to be compliant with industry regulations, such as KYC.
5. Finally, the funding step is the last one in the process. It means that the customer was approved for the loan and is able to receive it. 

Key components of LaaS for financial institutions

As with any complex software solution, LaaS has different components that help ensure its proper functioning. These include innovative lending solutions that enhance customer experience and streamline operations for financial institutions, including credit unions. If you’re considering integrating with LaaS, it’s important to pay attention to what makes the system a whole. 

The components in this segment are the ones I see as the key ones in any lending as a service. However, opinions might differ, and different outlooks on it might end up being extremely productive in terms of understanding the lending solutions. So, you need to ensure that the provider has these components present in the vendors’ software.

1. API connectors are the components that, as a median, connect APIs and facilitate data exchange between them. They help connect systems such as credit bureaus and payment gateways, etc. 
2. Credit analytics can be present in software that utilizes machine learning and artificial intelligence to assess creditworthiness. Overall, these technical solutions have enhanced security potential and can help improve risk mitigation and KYC. 
3. Onboarding helps in the management of the journey that the customer makes from load application to confirmation.
4. Invoice management speaks for itself – it’s a component that handles the generation of invoices and payment processing. 
5. A decision engine is similar to credit analytics. It automates the decision about the load based on pre-written algorithms and risk parameters, but unlike credit analytics, it influences the final decision, not just the initial step of confirming the creditworthiness.
6. Document management would allow you to digitalize documents and track all operations related to loans and internal processes. 
7. Customer communication is a sure way to improve customer experience by providing support, assistance, and reliable reactions to feedback.
8. Dashboards are a great solution for tracking KPIs and monitoring business performance, so I believe any financial business would benefit from them. 

There are more components to LaaS and integration with it; however, these are the most important, in my opinion. They bring benefits that I will discuss further. 

Benefits and Drawbacks of LaaS

The benefits of lending as a service platform for businesses come, first of all, from the opportunity to integrate with the service instead of creating a complex infrastructure for it. However, there are more benefits to the software solution itself as the niche continues to grow. The lending as a Service (LaaS) platform also enhances the overall lending capacity for businesses by integrating financial markets and enabling efficient access to funding.

Lending is an essential part of banking software, and according to Statista, currently holds second place in neobanking segments and is not planning to lose it. The segment’s revenue will grow to 400 billion USD by 2030.

Among the benefits of the service, I would like to put forth the following: 

#1 Enhanced Customer Experience

LaaS empowers businesses to provide flexible financing solutions tailored to individual customer needs. This boosts customer satisfaction and fosters loyalty that your clients have for your business, facilitating a better customer retention rate. For small business customers, loans, if done quickly through automated processes, also create a seamless customer journey, which, in turn, helps with maintaining a positive brand image. While traditional loans can take weeks to approve, LaaS is famous for being much quicker. Different solutions offer different timelines, but the most prevalent among them is from one to five business days, which is already faster than traditional methods.

#2 Accelerated Time-to-Market

As with every pre-built solution, LaaS can be quickly integrated with your existing solution and launched relatively painlessly. These standard processes and connected APIs might help you stay within budget and eliminate the need for extensive development and testing processes. This, in turn, will bring you to the market faster, allowing you to focus on the core functionality and deliver more high-quality solutions. All in all, it would be safe to say that the speed that LaaS provides can be also seen as a competitive advantage. 

#3 Mitigated Risk

It is only your choice what you want to see in your LaaS integration. However, automation will already mitigate some of the risks connected with fraud prevention. You can also choose AI or ML-powered LaaS that utilizes complex algorithms for loan approval. It would make your decisions more data-driven. But even if you stick to the traditional methods, lending solutions would still significantly reduce the risk of loan defaults, charge-offs, and non-compliance. 

#4 Increased Revenue Generation

As I’ve already mentioned before, lending remains the second most popular segment in neobanking. The possibility of quickly getting a loan online is lucrative for the customers, and this can most certainly be a stimulating factor for your business’ sales. Whatever monetization model you’re using, LaaS can bring a new stream of revenue to it. More so, LaaS would generate data insights that can help you optimize this solution later, improving targeting and driving innovation. So, in a way, LaaS is one of the greatest ways for businesses to get a solution that can provide revenue and data and be functionally useful to the customer.

Drawbacks of LaaS

But no solution is perfect, and while LaaS does offer significant business benefits, it also has its own drawbacks. 

One of them is a vendor lock. Once you get integrated, you’re locked in, and technical difficulties that the vendor might experience become your issues, service disruptors, and overall impactful malfunctions. To transition to a different vendor, you’d need to perform data migration and system integration and face potential process disruptions, which makes it more difficult. So, in this case, choosing a vendor is a complex task and must be done with great precision. 

Service limitations can also be potential drawbacks, especially for companies that seek full customization. Certain providers do not offer personalized service, restricting access to features or data, hindering your ability to gain more data and tailor the platform to your business needs perfectly. This can be fixed by integrating with providers that offer greater personalization or with several providers at the same time.

One of the drawbacks that I’ve encountered is hidden costs. This is a common drawback with integrations that many businesses face, and it mostly concerns hidden fees such as integration or migration fees (especially relevant when changing a vendor). Hidden costs can also concern staff training or data storage and would be an unpleasant experience. This is why I believe that communication with the vendor and attention to detail can be of great help.

Top 5 Lending as a Service Platforms

Let’s take a closer look at the most popular lending-as-a-service providers. These could be the companies you consider as your future vendors or just an example to follow when choosing a vendor yourself. I’ve curated this list based on my experience and customer feedback, so if you have any questions about any of these companies or their services’ functionality, you can simply contact me.

Stripe

Strengths: Renowned payment processor, vast customer base, robust infrastructure, developer-friendly APIs, seamless integration.

Focus: Embedded lending functionalities for existing Stripe users.

This company is a world-famous payment processor with a vast customer base and developer-friendly APIs. We’ve integrated many businesses with Stripe before, and every time, it has been a seamless experience for both us and the business. However, it’s important to know all the nuances for the maximum productivity. For lending, Stipe has a platform called Stripe Capital, which serves as a backbone for digital banking. It enables real-time credit decisions with end-to-end lending API powered up by built-in access via Connect. 

Monetization-wise, Stripe offers a revenue share on every extended loan. This is a prime example of how LaaS can create a new revenue stream. 

Mambu

Strengths: Cloud-based, modular platform, caters to diverse clientele (including emerging markets), customizable solutions.

Focus: Comprehensive LaaS solutions has a strong presence in emerging markets.

A cloud-native banking platform, Mambu, has gained significant traction in LaaS due to its modular architecture. It allows businesses in the financial niche to be flexible about lending products and improve personalization with no-code/low-code APIs. The configuration of the solution they provide is also beneficial to those who plan to scale in the future, as it uses a multi-cloud approach. 

The offers of lending as a service integrations include: 

1. Business lending 
2. Personal lending
3. Purchase financing (Buy Now Pay Later)

Scalability, personalization, performance, and API-first design helped Mambu reach the 2023 Forbes Cloud 100 and generate over $100M last year. 

Tavant

Strengths: Expertise in technology, end-to-end solutions, and strong overall financial performance.

Focus: LaaS as part of a broader digital product engineering portfolio.

Tavant offers lending as a service platform as part of its broader line of services, similar to Mambu and Stripe. However, it has a solution for it named Touchless Lending. It is an AI-driven lending platform that’s integrated with over 150+ third parties to enable higher personalization and better performance. Among their features are: 

1. Unified platform. Tavant unifies retailers, consumers, loan officers, and realtors in one platform, enabling a more efficient and unified workflow. 
2. Enhanced analytics and A/B testing. The platform enables Google Analytics integration, as well as Split.IO, for A/B testing to enable customers’ data-driven decisions. 
3. Experien Integrated Form Fill (EIFF) and customer validation through Precise ID.
4. Huddl.AI is for video chats between borrowers and officers, which also allows you to capture the most important bits of the conversation.
5. Communication features include call-back functionality, co-browsing, CRM integration, live chat, and document upload.

Narmi

Strengths: Focus on consumer lending, rapid growth, and partnerships with established financial institutions.

Focus: Embedded finance solutions with a specialization in consumer lending.

Narmi emphasizes digital banking, creating embedded financial solutions. They focus on the consumer market and convenient lending options, improving personalization and denouncing a one-size-fits-all approach to banking. They allow customers to add preferred functionality according to their clientele’s preferences, improving customer retention and account opening growth.

Their features include: 

1. Underwriting 
2. Loan origination
3. Automated decision-making
4. Risk management 
5. Reporting 

HES Loan Box

Strengths: Compliance focus, tailored solutions for the European market, reliable and compliant lending services.

Focus: European market with emphasis on regulatory compliance

HES Loan Box is an off-the-shelf solution with a permanent European focus. They offer a white-label lending platform with high-level KYC compliance, a branded mobile application, and SaaS loan origination software. Among their most standing out features are: 

1. Digital loan origination
2. Loan servicing 
3. Automated underwriting 
4. Dashboards
5. Address checking
6. Custom application forms 
7. Bank account verification 

How to Implement LaaS Step-by-Step

You need to choose the provider and make sure that they fit your business needs. For this, you can order a consultation from a reliable tech partner. Your primary concern should be not only the reliable vendor but also the tech service provider.

It’s important that your tech partner understands both the niche, including compliance and regulatory requirements, and the providers’ specifics in terms of lending services. For example, if you choose Stripe as your vendor, make sure that it’s available for your region and that the provider has experience implementing it.

Then, you and your tech partner integrate the lending services and finally optimize customers’ access to financing with the software already fully functioning.  

However, there are several considerations you need to account for. While LaaS is a powerful tool, it comes with risks that need to be mitigated. This is how you can do it: 

• Ensure that the LaaS provider has a robust credit assessment process. This would allow you to minimize default rates. 
• Protect sensitive data with encryption or AI. 
• Stay compliant with the regulations, and ensure that the provider you choose is also compliant with your local requirements. 
• Carefully review the agreement to avoid any hidden fees and understand responsibilities of the both parties.

Best Practices for LaaS Implementation

With the experience I have, I’ve decided to compile it all into an ultimate cheat sheet for LaaS implementations. These are the steps that I would take to ensure my integration with LaaS is going as successfully and smoothly as possible. 

1. Careful selection. I would pay extra attention to the provider as I would be locked in with this company for a fairly long time. Hence, it’s important to make sure they align with the business goals, target market, compliance regulations, and other factors important to my business. I would also check their financial stability, tech capabilities, and customer support rating. 
2. Risk management. If I were integrating with LaaS today, I would definitely ensure security for my and my customers’ data to mitigate any possible legal and financial risks. More so, I would set up a repeated assessment of my risk profile and modify my risk mitigation strategies accordingly.
3. Customer experience. First of all, this is all about customers and their usage of the new service. So, I would prioritize customers’ convenience by improving the speed and transparency of the customer journey. I also think it is important to be in a mindset of improvement, so I would account for feedback continuously. 
4. Set realistic goals. In my work, I always set KPIs to help me navigate. Integrating with LaaS would be no different. I would set on the path of continuous monitoring and data-driven decision-making to ensure that I’m getting the best from the investment. 

These are the steps that I would take to ensure that the integration of LaaS for me is on top. You don’t have to follow when 100% precisely, but I hope that they would be of use to you as well. 

Conclusion

Overall, LaaS is a great solution for those looking for additional revenue streams or want to innovate digital banking. It’s beneficial for customers due to its speed and convenience, as well as for businesses, as it does not require the creation of an entirely new infrastructure. It is also a relatively new field that still might preserve some spirit of innovation for the customers. 

I believe that LaaS has the potential to be disruptive. It is an incredibly comfortable solution for customers that brings extra security and enhanced efficiency. It would be incredible if more solutions like these started appearing on the market, so if you’re interested in it – let’s have a chat.