European digital lenders are growing quickly, but digital share is still low relative to the market opportunity, according to a whitepaper from Mitek and FinTech research practice Autonomous NEXT.

“The digital lending sector has grown dramatically in the last few years and is a great example of how technology can democratise access to financial services – but banks still dominate lending, and digital-first lenders are struggling to provide loans on better terms than their traditional rivals given high cost of capital,” said Lex Sokolin, global director for FinTech strategy at Autonomous NEXT.

“Our report found that venture capital investment is still flowing into the space and is set to hit $800 million in Europe,” he continued, adding that the UK alone has originations of over $6 billion, and Europe-wide, the addressable market is $150billion – with current digital lender revenues estimated at $400 million.

The research found that onboarding times have been drastically reduced in the digital world - from six weeks to a matter of minutes - but acquisition costs remain at $300 per customer.

A Know Your Customer (KYC) an Anti-Money Laundering (AML) check could cost as much as $150 per customer when fully loaded for bank cost, while the cost of their capital is preventing digital lenders from competing with incumbent banks on price – but this is not likely to be reduced anytime soon.

However, the report noted that digital lenders can harness their lower operating costs to their advantage. Where digital lenders must also play catch up is with security, and according to the paper, digital identity verification has the potential to be the tool to make this happen

“For digital lenders, mandatory KYC and AML checks are still largely manual, building delays and inefficiencies into the onboarding and vetting process,” said Rene Hendrikse, EMEA managing director at Mitek. “The solution is investing in digital identity verification (IDV), powered by artificial intelligence technologies, which provides an opportunity to massively enhance the efficiency of the onboarding process in terms of both speed and cost reduction.”

In fact, the report found that digital IDV solutions can help reduce KYC and AML costs by up to 70 per cent – and could potentially improve the speed of these checks by 80 per cent

“FinTechs and digital lenders in particular need to ward off inefficiency and drive the best possible customer experience,” added Hendrikse. “Identity verification technology could give digital lenders the competitive edge they need, and may help them take market share away from traditional lenders.”

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