The traditional process of loan disbursement used to be gruelling for borrowers and lenders alike. Wrought with inconveniences like in-person application submission & manual verification, it remained a dreadful exercise until recently when it changed and for the better.
The lending landscape is witnessing a paradigm shift towards digitisation and automation. Digital lending involves managing and processing loans online through the web or mobile phones. Automating the lending process can be quickly done by integrating tech innovations like cloud technologies, imaging and analytics. Digital technology is used to handle every part of the process from application to, document management, electronic signatures, credit analysis, decision making, pricing, and ongoing administration.
The current evolution of payment trends also necessitates the digitalisation of the lending process. The gradual move towards the digital has added to the list of conveniences like lower loan processing costs, better loan disbursement decisions and enhanced compliance during the repayment period. Digital lending is an improved version of the traditional lending process with enhanced steps.
The Benefits of Digital Lending
1. Digital Lending Allows Easy Capture of the Applicant’s Information
Going digital takes off geographical barriers when it comes to a loan application. With digitisation, borrowers can quickly initiate loan application from any place at any given time. Moreover, digitised lending platforms offer highly customised user experience, streamlined loan application procedures and ease of entering data quickly.
It also minimises the chances of human errors by correcting data entries wherever necessary. Even validation documents of a borrower can be scanned digitally, making the process a whole lot quicker and less cumbersome than it traditionally is.
2. Digital Lending Optimises Loan Underwriting Procedure
All financial lending companies could use a certain degree of underwriting efficiency and decision quality if they seek to make better returns. Digitally onboarding allows applicants to submit all information like credentials and documents in a digital format to eliminate manual procedures. Lenders can utilise the time they save in engaging clients in non-digital relationship-building activities. This ensures that customer service remains the heart of the business, even in the face of massive digitalisation.
Cloud integration makes it possible for the system to sync in data from credit bureaus, alternative credit scoring data, valuations and risk services too. Automotive technology is then used to apply decision rules to applicant’s configured credit scores to determine if a borrower’s loan application at acceptable risk. Decision rules also support compliance requirements stated by the law. These rules ensure that the underwriting process is consistently executed. Combination of AI-powered algorithms and machine learning offer far more polished underwriting expertise than human judgment.
3. Digital Lending Promises Quick Decision Making
Instant loans are the norm today. No loan applicant has the patience to wait for days before they have their application approved. Long delays in loan evaluation and approval process can deviate a lender’s business to a competitor. No right-minded company wants to end up with a client or a prospect like that.
Embracing digital automation allows lenders to flaunt auto decisioning to ease the application approval procedure. The days of time-consuming manual verifications are over, and for good. Thanks to digital integration into a lending platform, lenders can quickly run client credentials and documents through the verification and decisioning process. Even the disbursement of loans can be done instantly
4. Digital Lending Harnesses the Power of Analytics
Digital lending streamlines the loan disbursement procedure and creates a stock house of applicant, underwriting and funding data. Add to the mix the power of analytics and what you have at hand is a far more efficient lending process and superior portfolio performance.
What is even more interesting, is that the analytics are at work even when the company stakeholders are not. Lending companies desire greater consistency in both the credit approval process and portfolio management to bring home better ROIs. Analytics foster reliability into the lending platform where all borrowers are being weighed against the same terms and conditions without any bias.
5. Digital Lending Allows Borrowers with No Credit History Raise Loans Easily
Traditional lending relies on credit scores to disburse loans. But what if an individual is applying loan for the very first time and doesn’t have enough security to offer? Traditional lenders deny loans outright to borrowers who lack the credibility that they can prove through efficient credit repayment history. With digital lending and its reliance on alternative credit scoring data, even first-time borrowers enjoy easy access to loans. This what makes digital lenders the preferred choice of under-banked and unbanked masses.
Not to mention, erasing credit history constraints from the loan evaluation process allows financial institutions to disburse loans to a more substantial number of applicants, and consequently hope for better results.
A relatively new concept, digital lending, is still trying to make its mark in the financial lending market. There is initial resistance from lenders that stems from fears about security and difficulties with integrating new systems. Most businesses are blinded by short term inconveniences of embracing digital platforms like set up cost and logistics.
There is a need to advertise the enhanced services like streamlined loan analysis, reduced pricing and quicker decision making that digital lending promises. Lending companies need to realise that the move to digital lending can capitalise on enormous benefits shortly, given the face of stiff competition. Digital credit not only reduces operation cost but also increases the scope and volume of business for the lender, thus promising two-fold profitability.
As of today, there are multiple digital lending Saas and Paas frameworks that can be easily integrated into the system of a financial lending company like NBFC or MFI. Not only are these solutions highly customisable, but also offer end-to-end services to help a business best it can be, in an ever-evolving world. Their frameworks are cost-effective solutions that add speed and credibility to loan evaluation and approval process.
One such lending lifecycle management software is Finezza. The end-to-end lending management solution follows a wholesome approach to mitigate the troubles of the vendor and helps them offer a superior lending experience to the borrower.
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