Digital lending is the process of offering loans that are applied for, disbursed, and managed through digital channels

A modern, growing and robust economy rests on the pillars of the growing financial inclusion. It entails providing access to financial services and products to all individuals and businesses across the social spectrum at affordable cost, timely manner and tailored needs, from reliable and responsible providers. Over the last few years, technology has revolutionized industries across the world including the financial sector. Digital lending is seen as the easy way out of a lengthy bank process, which also ensures close monitoring and deep analysis. Digital lending is the process of offering loans that are applied for, disbursed, and managed through digital channels in which lenders use digitized data to inform credit decisions and build intelligent customer engagement. The Covid-19 crisis has opened more than just one door. When the world is crawling to normalcy, the pandemic has created opportunities for innovation, learning and behavioral shifts. Digital transformation has accelerated, businesses have amplified their technology investments on cloud-based products and services, and digital sales have gained momentum with traditional retail stores going online for the first time. With all these changes in place, digital lending is taking centre stage for the past ten months. Digitization of the lending process brings a number of powerful benefits for banks, including better decisions, improved customer experience, and significant cost savings. Banks are slowly opting for technology to better organize the digital lending process. Some of the Artificial Intelligence (AI) applications and its uses that serve as a major source in the lending process are, • Robotic Process Automation (RPA)- Banking trade, financial services and insurance industries are leveraging RPA technology. Lending Management Automation is the RPA being broadly used within this section. • Document automation- Document automation helps lenders to routinely extract prospects’ knowledge from their paperwork. • Enterprise automation- Enterprise automation permits prospects to fill digital varieties for making use of loans. • Electronic signature- Electronic signature feature allows signaling the paperwork online.  

The digital lending process

The digitization of the lending process has had mixed results globally with much focus on hybrid models, where a combination of technology and accessibility offers the most viable and scalable propositions. Broadly speaking, digital lending can be broken into five parts. Starting from acquiring and on boarding a customer to evaluating, disbursing the loan and receiving payments, everything comes under the digital lending process.  

Customer acquisition

Digital lenders acquire customers by using a mix of digital marketing tools and digital on boarding channels, enhanced by strategically designed physical touch points and referrals. An important aspect of the acquisition is the customer’s identification. Digital lenders make use of innovations in technology to access government and private sector verified records before lending.  

Approval analytics

Digital lenders use technology to analyze the loan seekers background. Lenders access and use digital data to make quicker, automated and more accurate underwriting decisions. Digital lenders use both conventional and alternative data sources, advanced algorithms and analytics to quickly and remotely take secure decisions.  

Disbursement and Repayment

Digital lenders disburse loans and collect repayment remotely through digital channels such as banks accounts, eCommerce accounts, or mobile wallets. These cashless channels improve operational efficiency and reduce fraud by providing with access to their funds in a matter of seconds.  

Collection

Digital lenders leverage data and algorithms to support their collection process. Delinquent customers filtered through customised recovery strategy will be blacklisted. They lose access to future credits, which can be a powerful motivator.  

Customer engagement

Digital lenders use digital channels and customer data to build an intuitive, convenient, and customised customer experience throughout the lending process. This involves both outbound and inbound communication and account management. Lenders send customized reminders based on customer behavior.  

The future ahead

FinTech lenders are currently playing a pivotal role in patching the economy. The effects of disruption caused by digital lending across the spectrum of customer engagement, origination, credit assessment, underwriting, risk monitoring, compliance, governance and collection are still unfolding. Digital lending is expected to open new doors in the financial sector. Some of the key predictions for the future in digital lending are, • Enhancements in underwriting or credit models using data from non-traditional data sources. • Cost-efficiency gains from FinTechmodels are expected to drive product innovation. • Increased scrutiny and regulations in non-traditional lending models. • Data and analytics-driven expansion into new customer segments and business models. Consumers’ adoption of FinTech models to increase steadily on the back of mobile penetration and convenience of segmentation, trading and positioning STP) online models.