Modulr: How payment processing drives operational efficiency in growing P2P lending and crowdfunding platforms

How payment processing drives operational efficiency in growing P2P lending and crowdfunding platforms

Modulr
July 2019

Cost management plays a significant part in almost any alternative finance business’ growth strategy. In fact, the ability to scale an operation without incurring excessive additional costs is critical to sustainable business development. 

As such, automation and cost optimisation in payment processing have a key role to play. By streamlining payment related functions, platforms and lenders dealing with high volumes of low value payments can remain not only viable, but highly profitable too.  

P2P lenders and crowdfunding platforms with growth ambitions must embrace opportunities to drive operational efficiency as they scale or suffer the threat of severe economic growing pains. With this in mind, many organizations in the sector are taking advantage of major opportunities to avoid such struggles.

Accelerating collection cycles to maximise payback

One of the most lucrative of these opportunities is the acceleration of collection cycles. With this critical capability, loan providers are able to rapidly and constructively respond to customers who miss repayment dates. This allows them to follow-up in real-time (when it matters most) and reduce the risk of bad debt.

The likes of API notifications that advise the provider when a payment has arrived, coupled with timely automated webhook enabled customer reminders help to facilitate this capability.

Eliminating reconciliation altogether

To further reduce operational costs, many organizations are eliminating the time and operational burden of manual reconciliation activity. This is being achieved by segregating funds based on client, project or supplier through Instant Payment Accounts and real-time account/ledger synchronization, via an API. The use of Instant Payment Accounts, coupled with a consolidated account view is also facilitating faster error tracing and resolution.

Automating accounts payable and receivable

For alternative finance companies to genuinely achieve sustainable growth, they must develop scalable payment and finance operations, without incurring a significant increase in costs. To achieve this, many organizations turn to API enabled payment automation service solutions.

By embracing automation, P2P lenders and crowdfunding platforms can eliminate operational overheads, while limiting the errors and first party fraud risks that are regularly associated with manually initiated, batched payment processing. In addition, automation also allows for immediate initiation of individual outbound payments - driving customer satisfaction.

Reducing technology support costs

Reducing costs is critical to successful growth, and errors caused by file processing and bank system unavailability are regularly putting unwanted financial burden on technology support and finance teams. 

Fortunately, by processing payments through a platform that supports per-transaction interaction via dedicated Instant Payment Accounts, and automatic transaction queuing into payment networks, many costs can be eliminated altogether.

Lowering compliance costs

While the rise of regulation in the P2P sector has been essential to building its credibility and reputation in the wider financial industry, its arrival has also added significant operational processes, and the costs that come with them. 

As such, there’s significant opportunity for P2P platforms to reduce their compliance costs 

through the use of EMI client accounts. With this approach, relevant organizations can reduce their CMAR reporting burden, improving the speed and efficiency of FCA reporting.

It’s integral alternative finance companies find a way to achieve compliance while remaining as transparent as possible, and without incurring significant costs in the implementation of new regulations and procedures. Those that do will develop a significant competitive advantage.  

Moving into the future, alternative finance companies that take a cost-focused approach to growth will see the greatest gains as profit margins grow with revenue.  

For greater insight into the role of payment processing in alternative finance efficiency and growth, check out our guide to innovative payments processing.

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