Eddie Oistacher: CEO of Lending Technology Provider Peach Finance Discusses the Future of Loan Servicing

The team at Peach Finance recently conducted a survey of fintech lenders in order to obtain their feedback and insights regarding the current state of lending..

As the fintech industry continues to grow and evolve, one of the most promising areas of innovation is lending. However, many lenders are held back by legacy infrastructure and struggle to fully embrace the potential of fintech. That’s where Eddie Oistacher and his company, Peach Finance, come in to provide viable solutions.

As co-founder and CEO of Peach Finance, Eddie claims he is “disrupting the lending industry with his cloud-native lending technology platform.” By removing the limitations of legacy infrastructure, Peach Finance is enabling lenders “to fully embrace fintech and reach their full potential.”

In an interview with Eddie, we learned about the challenges facing the lending industry, the considerable potential of fintech, and how Peach Finance is focused on helping lenders overcome the “limitations of legacy infrastructure.”

Our conversation with Eddie Oistacher is shared below.

Crowdfund Insider: What are some of the biggest challenges facing the lending industry today?

Eddie Oistacher: Some of the challenges facing lenders are perennial, and some are due to our current economic climate. One of the perennial challenges for lenders is managing the tradeoff of “build versus buy” for key components of the lending stack — specifically for loan origination and loan servicing. The appeal of building these components in-house is twofold. First, all else being equal, it is preferable for lenders to reduce their dependence on third-party vendors. And second, it’s appealing to be able to build functionality tailored specifically to the lender’s vision.

On the flip side, lending technology is extremely complex and requires significant product and engineering resources to build — a lending infrastructure project that finishes even remotely on time is rare. Perhaps more importantly, while custom functionality is appealing at the launch of a lending program, lenders typically choose to make important modifications as they pursue product-market fit. An in-house system with fixed functionality is difficult to modify on the fly in the face of changing markets, regulations and business goals. And the narrow focus of these systems doesn’t permit lenders to easily launch new types of lending programs in the future. So lenders — whether they are launching their first lending program or adding a new one to their existing portfolio — must always be weighing the pros and cons of “build versus buy.”

Looking more specifically at the current economic climate, lenders are facing two main challenges. One relates to the cost of funds, and particularly impacts lenders who do not lend out of their own deposits. In our current high-rate environment, the cost of funds is eating into margins, making profits elusive. While it’s true that lenders can raise interest rates to recoup some of this loss, there are diminishing returns as this tends to dampen demand.

The second challenge precipitated by our current economic climate is the potential for a downturn. Most lenders have seen credit quality weaken toward the end of 2022 and into the beginning of 2023. If our economy worsens and layoffs continue to proliferate, lenders will face increasing delinquencies, eroding their return on investment. While monetizing delinquencies is part of some lenders’ strategies, an economic climate rife with uncertainty is a net-negative for almost every lender.

Crowdfund Insider: Speaking of rising delinquencies — if we do experience a downturn, what strategies can lenders employ to weather the storm?

Eddie Oistacher: To answer that question, I need to give a little background. Today, many lenders struggle to effectively conduct first-party collections — that is, collections efforts conducted under the lender’s own brand. This is principally due to legacy servicing technology, which hinders lenders’ ability to implement flexible loan modifications and to automate collections processes.

The result is that lenders charge off many more customer accounts than they should have to. In many cases, these are good customers who are simply going through a tough time. By not being able to help these customers navigate a period of difficulty, lenders are likely to lose hard-won customers forever. Additionally, lenders find themselves in a position of having to charge off accounts, a practice in which they sell accounts for pennies on the dollar instead of finding ways to recoup a much larger portion of their outstanding balance.

The lenders who are best prepared for a downturn are the ones who invest in modern servicing technology that enables them to meet borrowers halfway, and to leverage efficiencies along the way that minimize the time and effort spent by agents. These lenders will see fewer repercussions if credit quality does continue to weaken, and they will emerge from a downturn having deepened loyalty within their existing customer base.

Crowdfund Insider: We often hear of “financial institutions vs. fintechs,” as if this is a battle with a binary outcome. Is this an accurate assessment within the lending space?

Eddie Oistacher: Not at all — in fact, nothing could be further from the truth. Once upon a time, fintechs may have been perceived as a threat to the existence of traditional financial institutions (FIs), but that perception has radically changed. This is for two reasons.

First, the fintech that had hoped to replace FIs wholesale have been largely unsuccessful. That’s not to say they haven’t built great businesses. But instead of replacing FIs, these fintechs have found a niche — doing certain things like point-of-sale financing, underwriting, and onboarding better than their FI counterparts. These more focused solutions don’t pose an existential threat to FIs.

Secondly, a very large portion of today’s fintechs in the lending space aim not to replace FIs, but to serve them. For every fintech building machine learning-based underwriting for their own benefit, there’s another fintech offering a similar technology to bolster the existing offerings of FIs. And in large part, FIs have embraced this symbiosis, acknowledging that they need help in certain areas in order to stay competitive.

So, in this way, we’re settling into a very healthy balance between fintechs — with their specialized product offerings and nimble approach to financial services innovation — and FIs — with their comprehensive product offerings, offline presence and established customer bases. It’s certainly true to say that the emergence of fintechs has made FIs better, that FIs’ resilience has compelled fintechs to be better, and that customers have benefited a great deal from the increased competitive pressure.

Crowdfund Insider: Any closing thoughts for lenders as they prepare not only for further ups and downs in the economy, but also for the future of the lending industry?

Eddie Oistacher: In recent years, loan origination technology has received a lot of attention because of just how behind many lenders were in their underwriting, fraud management, and customer onboarding experiences. Now that significant progress has been made in origination, post-origination technologies are likely to play a bigger role in the next chapter of lending innovation. In particular, this is true of the loan management system, which is the heartbeat of lending programs.

The loan management system determines whether lenders can support multiple asset classes and determines how flexible lenders can be in adapting to changing regulations, customer preferences and business needs. Needless to say, with the pace of innovation in financial services only increasing, the lenders who have an ability to stay nimble and adapt will be the ones who capture new market share and remain relevant over time.

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