The power of Digital Lending
DIGITAL LENDING
Digital lending is a key opportunity for competitive differentiation. This is not just about the speed of deaccessioning and fulfillment (the important basics) but also about delivering personalized customer journeys on a scale never seen before.
Digital Lending Platform (DLP) is a mortgage point-of-sale (POS) tool that goes from lead to rate lock effortlessly. Featuring our advanced Product Pricing & Eligibility (PPE) engine, DLP completely changes the way you originate loans.
Digital lending?is a technology that allows financial institutions to boost productivity and loan profits while providing speedier service at the?point of sale (POS). It enables potential borrowers to apply for loan products—such as BNPL—from any internet-capable device from any worldwide location.
As technologies advance and consumer demands evolve, that concept becomes more complex. Customers expect banks to process applications and render decisions at a furious pace. Run-of-the-mill paperless services are now commonplace, and financial institutions must provide customers with digital lending practices that reach beyond the ordinary to keep pace.
What is Digital Lending?
Digital Lending involves lending through web platforms or mobile apps, utilizing technology for authentication and credit evaluation. Lending is always about trying to get a strategic edge. How can fraud be found more easily, decisions about underwriting made more accurately, or the universe of targets grow more quickly than competitors?
Digital lending is a complex ecosystem wherein non-traditional providers are leveraging technology to overtake traditional retail banks. These lenders are combining digitally native solutions with speed, convenience, and enhanced customer service to simplify the lending process.
Several Drivers Are Changing the Digital Lending Picture
As well as evolving customer requirements, the SME lending landscape is being disrupted by several other factors, accelerated by disruptive technology:
1.???Demanding customers
As in most areas of banking, SME customers value speed and convenience. They want a seamless, end-to-end, consistent lending experience that delivers instant decisions and immediate availability of funds.
2.???Disruptive technologies
Banks need flexible, open, real-time, and easy-to-integrate solutions. They now have access to application programming interface (API) enablement and the use of external data sources to streamline front, middle and back-office activities. We would then expect data analytics, artificial intelligence (AI), machine learning (ML), and automation to enhance the offering.
3.???Decreasing revenues and operating margins
Banks can no longer rely only on cost optimization for profitability. They need to focus on generating new revenue. Corporate banks are increasingly realizing the revenue potential from the SME sector (particularly the middle-market clients), especially if they can simplify the lending process through extensive digitalization and automation.
4.???Competitive environment
Small businesses have a wide range of credit options, from Fintechs to BigTechs, as well as specialist SME niche lenders. These “challengers” are acquiring SME customers through fast credit scoring and offering loans directly via digital platforms. They can then expand products and services beyond lending to capture other revenue streams.
While banks remain the preferred choice for many SMEs, the COVID-19 pandemic has changed expectations, with SMEs increasingly looking for digital-led, simpler, and faster lending. An increasing number of SMEs are looking to Fintechs if their bank cannot meet this demand.?63% of SMEs still prefer traditional banks for their financial needs. But the use of competitors is increasing – 56% of SMEs use a banking and payments Fintechs service.
Benefits of Digital Lending
There are numerous potential benefits of digitizing lending processes. Five of those include:?
1. Streamlining the Application Process?
In various respects, consolidating and digitizing customer information lending improves the borrower experience.
Improved process transparency and shorter decision turnarounds reduce customer frustration.
It minimizes instances of incomplete files that delay application review.
It encourages better communication with the customer regarding what information they need to provide up-front.
An online loan application creates a central database that holds all application data. When a bank or credit union uses a digital banking platform, the entire financial package updates automatically when the customer provides the information necessary to complete the application.?
2. Digitizing the Lending Information
Digitizing the flow of and access to information provides significant benefits to the entire credit team. It improves transparency and reduces bottlenecks as follows:
·????????Information
Many digital lending systems allow loan processors to collect third-party data through a single interface, such as credit bureau reports and external bank and financial information. This process lowers errors and eliminates unnecessary manual tasks, allowing the decision-making process to happen faster.
·????????Access
Lenders can access all borrower information from one centralized location. Digital lending software that uses customizable workflows then documents decision processes for more successful audit tracking.
3. Using Lending Information for Analysis
Financial institutions can also digitize the analytics and intelligence areas of the lending process.
Lenders and analysts often resort to using varying estimates and assessments. These discrepancies often result in faulty calculations, leading to incorrect credit decisions and inaccurate reporting. However, a digital lending system integrated into a digital banking platform can analyze, approve, and price each loan product quickly and accurately. Simultaneously, once the system collects the lending data, banks and credit unions will be better able to use insight to evaluate portfolio risk and make strategic decisions.?
4. Offering Mobile Lending Features and Document e-Signing?
Specific customers, particularly Millennials, favor mobile features because they are accustomed to performing most daily tasks from their phones - and accessing lending materials is no exception.
They do not want the hassle of visiting physical branch locations to review and sign disclosures and other relevant documentation when electronic loan procedures are available. That inconvenience is often significant enough for some customers to warrant taking their business to a digital loan provider.
5. Providing Loan Options for Poor or No-Credit Customers?
Financial institutions rely heavily on credit scores in traditional lending practices. Credit scores offer lenders an in-depth look at a would-be customer's past borrowing behaviors.?
However, many customers are looking for first-time loans and do not have an established credit history. Traditional lenders sometimes refuse to lend to borrowers who lack a history of timely loan repayments.?
Digital lenders, on the other hand, often forego these hard credit checks for short-term loans?such as BNPL. They rely on either alternative credit score data or little to no financial information, making loans more accessible to first-time borrowers.?
This greater flexibility and approval leniency makes digital lenders a preferred option for financially-strapped and even non-banked customers. Removing credit history roadblocks from the loan approval process allows financial institutions to expand their customer base and supply more loans.
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What to Look for in Digital Lending Platforms??
Digital lending platforms differ by provider, and each includes its own set of particular and customer-specific features.
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However, any effective digital lending platform should include the following:
How Do Banks Make the Change to True Digital Lending?
·????????Enhanced information?
Banks can enrich the data that sits behind the credit scoring model. Lenders can integrate internal customer data with broader and more innovative information retrieved from external sources (local socio-demographic data, web data, PSD2, etc.). This allows the bank to unlock financing for creditworthy but rejected SMEs and offers predictive, tailored solutions (using AI, ML, and data analytics).
·????????Scalable and open-banking technology
Leveraging APIs and the cloud allows banks to offer more complex and targeted services and be faster and cheaper to run.
If banks really want to digitally transform their lending, they must look at changing not only the customer journey but the underlining processes. Many digital enablers, applications, and systems can accelerate digitalization, all through the credit process. The challenge for banks is finding a combination that most efficiently replicates their credit life cycle, making integration easier.
·????????Leveraging the full power of the bank
Lenders should work with all business units across their products and services and tap into distribution channels and after-sales services. This helps build an agile operating model with clear governance to operate across the bank at high speed.
·????????Customer experience first
Ensuring customers have a seamless journey across different products and services, with a clear end-to-end journey, builds satisfaction and loyalty, as well as lower drop-out rates as banks become more relevant.
·????????Best in class
Working with third-party solution providers ensures a wide, deep, and up-to-date offering in line with the bank's long-term vision.
Digital Lending Process
Digital lenders disburse loans and collect repayments remotely through digital channels, such as bank accounts, e-commerce accounts, or mobile wallets integrated with a partner (or) third-party integration. These cashless channels improve operational efficiency and reduce fraud by providing a clear audit trail.
Step 1: Loan Origination
Use Loan Calculator to select the amount and duration of the loan to instantly find out the monthly installment amount
Pre-approved offers for simple, hassle-free, and fast loan applications
Ensuring a personalized customer journey with Next Best Offer
Step 2:?Application and Data Capturing
Online application: offering a fully-digital, customer-driven lending experience
Customer identification: complying with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations
Document checklist: handling large volumes of loan documents swiftly and accurately with Optical Character Recognition (OCR) technology
Digital verification for proof of customer (income and repayment capability
Step 3: Loan Processing
Using Microsoft 365 capabilities to define a list of pre-approved automated loan checks
Swift decision-making processes to facilitate pre-approved offers and instant loan approvals
Connecting to multiple credit checking organizations
Step 4: Underwriting
Integrating eligibility calculator to reduce acquisition costs
Approval in principle for customers with limited data
Step 5: Loan Approval
Digitizing confirmation process to on-board the new customer
Robust deaccessioning engine for fast decisions and instant disbursement
Step 6: Disbursement?
Simplifying loan applications with digital signature workflow
Handling documents digitally from template automation to printing, document scanning to archiving?
Cross collateralization where borrowers use one asset to back up multiple loans*
Connecting contracts post signature to APIs and existing systems through clause templates
Digital Lending Companies in India
THE FUTURE OF LENDING IS DIGITAL
?The industry has been alerted by Covid-19 to the tremendous potential of digital transformation. As customer demand for contactless transactions rises, more lenders will adopt technology to provide borrowers with maximum convenience. Even traditional banks and non-banking financial companies (NBFCs) are realizing the need to digitize processes such as customer onboarding, risk assessment, loan underwriting, disbursement, and repayment in order to reduce operational costs and enhance the customer experience.
With services such as video-KYC, Aadhaar-based KYC, and websites and applications with cutting-edge functionalities, loan application procedures will become more efficient and less cumbersome. Additionally, the traditional credit underwriting procedure will undergo a radical transformation. Lenders will increasingly utilize cutting-edge technologies such as AI, ML, and big data analytics to collect and evaluate data from multiple sources in order to evaluate the creditworthiness of an applicant more quickly and efficiently. With the technology that enables alternative credit scoring, lenders can extend credit to a greater number of individuals, thereby advancing the cause of financial inclusion.
In the coming years, technology will continue to disrupt the digital lending ecosystem, with a renewed emphasis on delivering an improved end-to-end customer experience.