Can the Digital Lending Rush Solve Fintech Revenue Challenges?

Digital lending has undergone significant advancements in the past decade, and the recent pandemic has further highlighted the necessity for user-friendly, dynamic, and easily accessible lending platforms for both borrowers and lenders. In today's era dominated by tech giants like Apple and Amazon, borrowers expect a seamless experience that eliminates the need for human interaction or cumbersome paperwork.

As traditional banks and specialized lenders work towards transforming their systems to meet these evolving demands, FinTech companies are capitalizing on the opportunities created by the gaps in the market left by traditional financial institutions.

These agile and innovative finance firms are leveraging technology to deliver convenient and efficient lending solutions, catering to the changing expectations of borrowers in the digital age. By embracing emerging technologies and reimagining the lending process, companies are reshaping the financial landscape and providing borrowers with a streamlined and hassle-free experience.

The Era of Digital Lending

Recent statistics from the Canada Banker's Association reveal that digital banking has gained significant traction among Canadians, with 49% of the population opting for digital banking services. Moreover, the pandemic has played a crucial role in shaping consumer behavior, as an impressive 75% of Canadians express their intention to continue utilizing digital banking methods that they adopted during the pandemic. This shift in consumer preferences underscores the growing importance of digital banking in the financial landscape.

In the United States, the dominance of FinTech companies in the personal loan sector has experienced remarkable growth over the past five years. Currently, these innovative firms account for more than 38% of the personal loan market, reflecting a substantial increase compared to their position just half a decade ago. In contrast, traditional banks witnessed a decline of 12% in their market share within the personal loan sector during the same period. [Reference]

Why is this the case??

The primary reason behind it is the absence of simplicity, speed, and accessibility.

In today's financial landscape, prominent FinTech companies have emerged as frontrunners in providing efficient lending solutions. These innovative firms are capable of generating multiple loan quotes within minutes and disbursing funds in a matter of days. The key advantage they offer is their commitment to simplifying the lending process, enabling borrowers to access loans quickly and conveniently.

Digital Lending Challenges

Developing a comprehensive and fully automated digital lending solution can be a formidable undertaking, particularly without the necessary tools and automation capabilities.

Traditional financial institutions face a multitude of challenges when striving to provide an experience that rivals the offerings of FinTech companies. Some of these hurdles include implementing automated self-service functionalities, ensuring compliance with regulations, fortifying fraud prevention and cybersecurity measures, and streamlining document processing.

• Complicated and Slow Loan Origination Process

Companies that fail to provide borrowers with immediate loan decisions are at risk of losing customers to faster FinTech alternatives. Relying on outdated loan origination processes that involve cumbersome paper forms, in-person bank visits, and lengthy risk evaluations can lead to trouble. A study found that 42% of respondents abandoned their loan applications because the process was too lengthy and complicated. Additionally, 62% expressed dissatisfaction with the digital experience, citing "too many touchpoints" and the need to visit physical locations as major pain points. [Reference]

Solution

Lenders can implement a simplified and user-friendly loan application interface with clear instructions and an intuitive design. Additionally, leveraging automation and AI technologies can expedite the verification and approval process, reducing the time taken to originate loans.

• Partial measures instead of end-to-end solutions

Delivering a comprehensive solution requires substantial resources and time investment. In the lending industry, large-scale projects have traditionally taken twelve to eighteen months to realize their value, but in today's fast-paced FinTech community, success is measured in much shorter timeframes.?

Attempting to automate only a single aspect of the customer journey while neglecting the rest can lead to complications and reintroduce manual interventions in the long term. To truly disrupt the lending landscape, a holistic approach is necessary, ensuring seamless automation across the entire customer experience.

Solution

To overcome this challenge, lenders should strive to provide comprehensive end-to-end digital lending solutions that cover the entire loan lifecycle, from application to disbursement, servicing, and collections. This ensures a seamless and integrated experience for borrowers.

• Data Silos and Lack of Personalisation

During a digital transformation project, it is crucial to establish a system that promotes seamless communication and integration among its various components. Failure to achieve this can result in wasted time that could be better utilized for strategic initiatives and planning. The presence of data silos within multiple systems poses a challenge for banks, as it hinders their ability to obtain a comprehensive 360-degree view of their customers' business. Consequently, creating personalized offers and recommendations becomes a complex task.

Solution

To address this challenge, lenders should invest in robust data management systems that integrate data from various sources, such as credit bureaus, bank statements, and digital footprints. By breaking down data silos and employing advanced data analytics techniques, lenders can gain holistic insights into borrowers' financial profiles, enabling them to personalize loan offerings and improve risk assessments.

What's the Future?

Fintech companies will forge more partnerships with traditional financial institutions, technology companies, and other industry players. These collaborations will lead to innovative solutions and the creation of new revenue streams.

As digital lenders gather more data, they will have the opportunity to offer highly personalized loan products and services. By tailoring solutions to individual borrower needs, fintech companies can drive customer satisfaction and revenue growth.

• Integration with Open Banking

Open banking initiatives will enable seamless data sharing between lenders, banks, and other financial institutions. This integration will unlock opportunities for digital lenders to access comprehensive borrower data and facilitate faster loan approvals.