Digital Lending – A Growing Technology!!
Lending is simply the act of giving money on credit to another person called the borrower. The borrower repays the money to the lender with interest over a defined time-period. Lending is a widely understood concept. However, the traditional approach to avail loans is fairly long and complex. Therefore, Banks and financial institutes as part of their Digital strategy trying to digitalize the lending process as well
However, today’s challenge is not digital technology; it is the enterprises’ ability to re-imagine how businesses run by harnessing digital’s power to adapt and compete.
Digital lending can start as basic as an online loan application offered by a bank or credit union on its website. It can also be as comprehensive as an entirely automated platform that includes a full suite of software, such as an online loan application, document capture, electronic signatures, credit analysis, loan pricing, loan decisioning and loan administration.
A few drivers for Digital lending adoption:
- Loan Origination Costs: Application for a new loan comes with a high loan origination cost. These costs are incurred due to handling the physical records, paperwork and background checks involved in approving the loan. Most of the time these costs are passed on to customers in form of processing fees
- Turnaround Time: The paperwork is not known for its speed and things move at their comfortable speed. Most of the cases loan disbursal using conventional lending method takes around two to three weeks, sometimes might have wait even longer
- Manpower Requirement: Document collection, Data entry into system, data storage / archival and retrieving documents require a lot of man power
- Location Constraints: Lender needs to be present at the same location to process any conventional loans, which can be a needless restriction
Therefore, most of the Banks and financial institutions have undertaken digital lending initiative in one form or other.
As mobile technology penetrates every aspect of the customer’s daily lives, banks and finance institutes are now focusing their strategy on creating mobile applications to acquire new and serve existing customers.
In these cases, the entire loan processing lifecycle (from the application boarding, supporting documents submission, real time data verification, eligibility calculation using scoring model, loan disbursement, loan repayment till loan closure) is managed through Customer Mobile application.
A few Benefits for Digital Lending:
- Minimal operational Requirement: Digital lending transforms the traditional process as there is minimal paperwork involved also distribution cost of physical channel gets reduced.
- Self- Serving channel: Bank can reach to higher number of potential customers thus increasing addressable market
- Quick Disbursal: The loan disbursal process has been upgraded with digital tools, As soon as the application processing is complete, the loan amount is transferred to the applicants bank account
- Alternative Credit Models: A lack of historic credit data makes lenders skeptical, in Digital Lending; however, your digital life is your history. Social networking profiles like Facebook, LinkedIn, and other channels may serve as surrogates for credit history.
Although Mobile app lending is a fast-growing platform, there are a few risks involved in adopting such technology. For example: Since it is a fully automated process there are possibilities of fraud injection in the process by exploiting the vulnerabilities of the application. There are also possibilities of providing fraudulent documents as verification process for documents doesn’t always involve authentication against a central database. Moreover, banks have to make a lot of changes to their existing policy and processes to implement digital lending. These challenges are delaying adoption and progress to complete digitalization.
Mobile lending application are helping banks, financial institutes and consumers equally. These applications are effective as it saves time, cut short many processes, includes features like list of other products of banks which might interest customers. Therefore, digitalization is the future for lending. The technology industry should enable quick adoption of digital lending by all Banks and Financial institution by addressing the challenges of implementation time, fraud risks and process changes through building secure applications which are highly customizable and easy to implement and at the same time highly secured with streamlined processes and improved document verification methods.