Loan management software (LMS) has been quietly transforming the lending landscape, improving borrower experiences and operational efficiency among lenders. At present, the uptake of digital LMS is witnessing exponential growth driven by advances in technologies, including artificial intelligence (AI), predictive analytics, data analytics, robotic process automation (RPA), and machine learning.
As consumer expectations and financial capabilities evolve, loan management solution providers must adapt swiftly to secure their position in an increasingly crowded market. This article explores the major trends and developments in the loan management software space that will redefine lending in the coming years.
5 Major Trends and Feature Developments in Loan Management Software Solutions
From increasing adoption of cutting-edge technologies to rolling out features that address relevant problems in digital lending, let’s explore the noteworthy trends and developments in the loan management software space:
1. Entrenching Influence of AI
Artificial intelligence, or AI, will continue to play a key role in transforming the different aspects of loan management, including borrower risk assessment, fraud detection, non-performing asset (NPA) prediction, and more.
A 2023 McKinsey report suggests that generative AI has the potential to add around $200 billion to $340 billion across banking by helping lenders improve productivity and operational efficiency.
Another report indicates that around 73% of lending institutions are using some form of AI or ML for fraud detection.
Apart from the aforementioned applications, AI or related technologies will influence product development and pave the way for custom-fit loan management solutions to fulfil the unique requirements of lenders.
2. Electronic Know Your Customer (e-KYC) Process
Imagine this. You apply for a loan, and the lending institution asks you to visit a branch to complete your KYC. Now compare that with a lender that has adopted e-KYC, where you can complete identity verification digitally, often within minutes.
Thanks to initiatives by the Unique Identification Authority of India (UIDAI) and guidelines issued by the Reserve Bank of India (RBI), e-KYC has become widely accepted across financial institutions in India. Using Aadhaar-based biometric authentication, borrowers can verify their identity remotely through a loan management software, eliminating paperwork and in-person visits.
As lenders increasingly focus on reducing turnaround time and enhancing borrower convenience, digital solutions that support paperless, Aadhaar-enabled e-KYC will continue to gain traction, especially in tier-2 and tier-3 cities, where physical access to financial institutions can be limited.
This way, modern loan management software platforms would be helping lenders offer a faster, more seamless onboarding experience.
3. Recurring Repayment or Event-driven Reminders
The significant surge in the number of non-banking financial companies (NBFCs) has played a key role in improving financial inclusion in India.
However, the delinquency rate, particularly among personal loan borrowers, was around 44% between December 23 and June’24, highlighting the need for efficient repayment and event-driven reminders in loan management solutions.
These repayment reminders enable borrowers to stay on top of their repayment cycles and thereby arrange their finances accordingly to avoid loan defaults, penalties, and unexpected financial stress.
Therefore, forward-thinking loan management software vendors are adding features that allow lenders to send one-time or recurring repayment reminders for different events, including upcoming payments, loan terms, changes in terms and conditions, and more.
4. Flexible Loan Management and Servicing
One of the biggest factors that influences a borrower’s decision-making while picking a lending entity is the ability of the loan products to adapt to their unique requirements.
Similarly, lenders are looking for advanced solutions that allow them to customise loan services and embrace a tailored approach for every borrower.
At present, several loan management software providers are adding a range of features that enable flexible loan servicing. Some of these features include on-demand loan restructuring, the option to repay early, and event-driven messaging.
Further, lenders may not require all the features of a specific loan management and servicing solution, so it is crucial to provide tailored products with relevant features that fit into their business model.
In short, modular loan management solutions are likely to dictate the course of digital lending in the future.
5. Automated Document Processing and Management
Nearly 63% of lenders admit that manual and paper-intensive document processing can take over 30 minutes and even longer, depending on the terms of the loans. On the other hand, automated document processing or document processing automation allows lenders to process documents accurately within minutes.
- Loan management software vendors are prioritising document processing by adding advanced features, including automatic data capture through optical character recognition (OCR), data validation, and customisable workflow automation during document management.
- Document processing automation leverages the benefits of AI-driven algorithms to detect discrepancies or red flags, eliminating paperwork and increasing operational efficiency. This allows lenders to accept and process borrowers’ financial documents across different formats, including JPG, PDF, and scanned files.
- Many vendors are also including role-based access to fast-track loan approvals and ensure timely responses from relevant stakeholders in the loan processing and approval cycle.
Parting Notes
These loan management software trends indicate the increasing emphasis on providing seamless borrower experiences while being transparent and offering customised loan products.
Today, while lenders seek customisable tools to enhance digital lending experiences, borrowers are increasingly turning to lenders that use modular lending and loan management tools that cater to their evolving requirements.
While there is no doubt that AI and related technologies will gradually take over the digital lending space, loan management software providers must focus on developing customisable tools that can adapt to the rapidly evolving borrower expectations.
Finezza offers a future-ready loan management software that is equipped to handle different types of loans, supports single and multiple loan repayment and disbursal schedules, and flexible payment modules.
From seamless loan communication management to frictionless loan restructuring, the loan management system is meticulously developed to empower lenders at every stage of the lending lifecycle.
Book a demo to transform your loan management processes.
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