Twists & turns of building a digital lending platform
Digital lending is a rapidly expanding industry, with the global market predicted to reach $71.8 billion by 2032. The increasing availability of online data, the rising demand for convenient and quick lending alternatives, and regulatory changes that have made it easier for non-bank lenders to operate are all contributing to this growth.
A digital lending platform simplifies the lending process from start to finish, and it is powered by a variety of technologies, including AI, machine learning, and big data analytics, to help lenders assess borrower risk and make smart lending decisions.
In this article, we will identify some challenges you will likely encounter when building a digital lending platform and how to tackle each one of them.
Building isn't without its challenges
Despite its rewards, building a successful digital lending platform comes with its own set of challenges. Here are the most common:
Data collection and?analysis
The lending process relies heavily on data. The sheer volume of it, including credit history, income, employment, and other personal information, can be difficult to collect, store, and analyze. Also, the varying quality and evolving nature of the data collected complicate the process even more.
Loan origination
Your solution needs to be able to originate loans quickly, efficiently, and in a user-friendly manner. This involves automating the loan application process and integrating it with other systems, such as credit bureaus and payment processors.
Compliance
Several regulations govern digital lending activities in your region, including those governing consumer protection, data protection, anti-money laundering, and fair lending. These regulations can be complex and ever-changing.
Risk management
You need to have a strong handle on the risk of default. Setting appropriate lending criteria, monitoring customers’ repayment behavior, and having a robust collection process in place are all a part of the complexity.
Security
A digital lending platform typically handles sensitive financial data, including customers’ personal information, credit scores, and loan amounts. If this data is compromised, it could have serious consequences for customers and you the lender.
Scalability
The volume of loan applications can fluctuate significantly. For instance, your platform may experience a surge in loan applications during the holiday season or when interest rates are low. And if your system is not scalable, it may crash under the increased volume of traffic, which could lead to delays or even system outages.
Navigating the twists &?turns
Now that you are aware of the challenges involved, let’s take a look at how you can navigate them successfully.
1. Research extensively
Before you start building, understand the lending landscape and the specific needs of your target market.
Once you have a good understanding of the market and are prepared to dive in, you can start to develop your platform.
2. Choose the right technology
Understand your needs. What are the specific requirements of your digital lending platform? What features do you need? What kind of data will you be storing? How much traffic do you expect to receive?
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Consider your budget. How much are you willing to spend on your technology stack? Work with your budget but don’t go cheap. It ends up being costly.
Research different technology stacks. There are several different technology stacks available, each with its strengths and weaknesses. Compare different stacks and find one that is a good fit for your platform’s needs.
3. Get compliant
Make sure your platform is secure and compliant with all applicable laws and regulations, including those governing data privacy and security.
4. Build a secure?platform
Security is essential for any digital lending platform. You need to make sure that your platform is protected from fraud and cyberattacks. This means using strong encryption, implementing security controls, and conducting regular security audits.
5. Start small and scale?up
Don’t try to build the perfect platform right out of the gate. Start with a minimum viable product and then add features and functionality as you grow.
Be flexible and adaptable. The lending landscape is constantly changing, so you need to be prepared to adapt your solution to meet the ever-changing needs of your customers and the regulatory environment.
Use a cloud-based platform: Cloud-based platforms are scalable by design, so they can easily handle increases in traffic or demand. This makes them a great option for digital lending platforms that are expected to grow rapidly.
Use a microservices architecture. Microservices architectures are made up of small, independent components that can be scaled independently. This makes it easier to scale a microservices architecture as your business grows.
6. Manage data the right?way
Use a data collection and analysis platform that is optimized for a digital lending platform. These platforms can help you to collect, store, and analyze data more efficiently.
Work with a data scientist or other data expert who can help you to clean and prepare the data for analysis. This helps you ensure that your data is accurate and reliable.
Use a variety of data sources to get a more complete picture of borrower risk. This includes traditional data sources, such as credit history, and newer data sources, such as social media data.
7. Manage default?risk
Your digital lending platform can use a variety of methods to manage the risk of default, including:
8. Bring the right people on?board
Building a successful digital lending platform is a team effort. You need to assemble a team of experts with the skills and experience necessary to bring your solution to life. Your team should include product managers, developers, designers, data scientists, growth managers, risk managers, customer support, and compliance professionals.
9. Test &?iterate
Get feedback from potential users as you develop the platform. This helps you ensure that the platform meets their needs. And once you have a working platform, test it thoroughly and iterate on the design based on your findings. This way, you get to build a user-friendly platform.
Build a digital lending platform with?Digicore
There is so much to gain from building a profitable and resilient digital lending platform. If you intend to build one, your first step is to work with a highly capable fintech development company.
Digicore develops customer-centric financial technology solutions that meet ethical and legal guidelines, and help financial institutions achieve their key business objectives. If you are looking to build a gamified fintech solution, get in touch with us today, and let’s get started.