Why Automation and Digitalization of Lending Business is Future?

Just like other industries, the wave of automation and digitalization is transforming the financial lending business also. The global pandemic only succeeded in accelerating this wave. The need for remote working and social distancing in the financial sector increased the shift towards automation and digitalization.

The global lending industry faces a host of challenges like changing customer expectations, improved products, and manual processes, which are driving the shift towards digital lending.

According to Mordor Intelligence, the digital lending market (valued at $453.32 billion in 2024) is projected to reach $795.34 billion by 2029. Automation and digitalization are now a necessity for small lending companies to stay competitive and profitable. Due to manual processes, back-office lending processes like loan approval and account opening continue to lag in time and efficiency.

Here’s a look at some of the benefits, focus areas, and implementation methods of automation and digitalization in the lending business.

5 Benefits of Lending Automation and Digitalization

Here are some of the benefits of automating and digitalizing the lending domain:

• Cost savings

With automation and digitalization, lending companies can eliminate their manual processes like account opening, thus potentially saving costs. Additionally, through digitalization, they can eliminate paper-based processes like KYC and loan applications.

Digital lending also frees up personnel for promoting (or focusing on) new lending products or services.

• Faster loan processing

Manual (or human-driven) loan processing is both time-consuming and frustrating for customers. Besides, manual processes are prone to human errors. Lending automation can speed up tasks like collecting supporting documents, verification, and loan disbursement.

With digitalization, loan processing companies can handle more loan applications without compromising on their speed and accuracy.

• Data security and compliance

Digital systems can keep sensitive data (like customer information) more secure from cybercriminals. Digital lending platforms provide companies with better visibility and control over confidential data, thus reducing the risk of financial fraud.

Lending automation also improves regulatory compliance by reporting any data violations. Overall, customers are more comfortable dealing with loan companies that ensure data security and compliance.

• Customer experience (CX)

In today’s digital age, customer experience (CX) as critical as high-quality products or services. Using digital lending platforms, customers can easily submit their loan applications, and supporting documents, and also track their application progress.

With automation, lending companies can accelerate their loan processing and approvals, while keeping potential borrowers informed of the entire process.

• Lower risk quotient

With manual loan evaluation, companies are prone to poor or “biased” decision-making, which can prove expensive and damaging. With automation, they can automate data entry and verification, thus reducing the risk quotient.

Using advanced data analytics, loan companies can screen applications more closely and identify any potential risks. Besides improved risk assessment, digitalized lending enables companies to comply with complex regulations, thus minimizing the risk of any fines or penalties.

Key Lending Areas for Digitalization and Automation

Which are the key areas in financial lending that are prime for digitalization and automation? Here are three of them:

• Account opening

With the increase in loan applicants, there’s an exponential increase in the number of account holders in the bank or lending company. However, modern borrowers are unwilling to visit their nearest loan office to open an account and submit their documents.

Digitalized account opening is more convenient and can attract more borrowers. Besides account opening, digitalized customer onboarding can help companies eliminate time-consuming manual onboarding.

• Loan application

Digitalized loan applications can enable borrowers to submit their applications from any device and reduce paper wastage. Digital lending platforms also feature secure document management to protect document uploading and sharing. With pre-filled customer data (from external sources), digital lending can simplify customer verification and loan approvals.

• Business lending

In a changing market environment, small businesses require quick funds to revamp their facilities. Without unnecessary paperwork, digital business lending can simplify this process through e-signatures and electronic paperwork.

At the same time, digitalization can help lending companies prevent financial fraud in the business domain. Efficient user authentication and biometrics in digital lending can fail-proof any lending system from fraud.

How to Automate and Digitalize Lending

Finally, the question is how can lending companies automate and digitalize their system. Depending on their lending requirements, this process can vary. Here’s a generic approach to automating and digitalizing the lending process:

-1. Identify the business areas to be digitalized and automated. This could include slow, error-prone manual processes.

-2. Prioritize the areas that need to be immediately digitalized or automated. These are the key areas that can deliver the most benefits from digitalization.

-3. Evaluate and select the best-suited technology solution, based on factors like functionalities, ease of integration into existing systems, and affordability.

-4. Create an implementation plan with clarity on the deadline, user roles, responsibilities, and communication methods.

-5. Train the existing workforce with the necessary skills to work with digital and automated tools.

-6. Monitor key improvement metrics of the implemented lending solution, including loan processing time, data error rates, and customer satisfaction.

-7. Leverage data insights to identify areas of improvement and improve digitalization and automation strategies.

Conclusion

With automation and digitalization, lending companies are replacing their “traditional” models with innovative solutions. Besides improving the customer experience, digital lending platforms can improve lending efficiency and risk assessment.

At Verinite, we are helping the lending industry embrace digital transformation in the post-pandemic phase. Our expertise extends from the loan origination phase to loan management and payment collections. Through digitalization and intelligent automation, we have enabled our lending customers to maximize their business value and reach out to more borrowers.

Are you looking to automate and digitalize your lending systems in 2024? We can assist you. Get in touch now.