Digital lending has been gaining popularity all around the world. Not only are FinTech start-ups adopting digital lending, but even established multi-national banks are leveraging digital tools for the purposes of lending.
The financial sector, in India and around the world, is now in the midst of digital transformation. All processes of such institutions are being moved online thanks to the developments in information technology. Let’s see how these developments have benefited the lending industry.
Primary Factors Leading to Growth in Digital Lending
In this article, we’ll discuss 5 of the main reasons why digital lending is becoming more popular with borrowers and lenders alike.
1. Easier Process
Digital infrastructure has made it possible for lending companies to make the process much simpler. The borrower doesn’t have to travel to the bank multiple times. They don’t have to stand in line at the bank for hours. They don’t have to wait for a minimum of two weeks before the loan is processed. And so on.
Almost everyone these days prefers to operate online rather than in-person.
Further, borrowers prefer to get all the information at their fingertips. They can compare different lending products with each other. They can read the terms and conditions. They can judge the credibility of the lending company. And it can all be done online.
This makes it easier not only for the borrower but also for the lender. The lender does not have to spend on maintaining costly branches all around their catchment area. They do not have to spend on costly traditional marketing methods. All they need is a robust website, a good executive team, and investing in some digital marketing to reach potential customers.
2. User-Friendly Interface
Most digital lenders give particular attention to the user interface of their online digital lending platform. This platform can be in the form of a mobile app or a website or both. It is important to make the interface user-friendly because otherwise the borrower might get confused or it might take too long.
Thanks to developments in UX and UI research, lenders now have the ability to make interfaces highly attractive and super smooth. The entire process, as long as the loan is unsecured, does not take more than half an hour.
Most of the time, the user interface also has built-in customer support. This means that the borrower can chat or talk with a customer support executive in case they have any doubts and ask for clarifications. This ensures that support is provided on every step of the way, and the borrower is not left to navigate the process on his own.
3. Partially Automated Decision-Making
With developments in software and artificial intelligence, the loan decision-making process has been made much easier and quicker. Traditionally, loan officers had to manually sift through and analyse thousands of loan applications. It used to take at least a couple of weeks before a loan could be processed. There used to be several turnarounds as various stakeholders provided their inputs.
Nowadays, highly sophisticated loan processing software is available. You can enter the details and finances of a loan applicant, and the software will analyse all the data. Once the data has been analysed, you will receive a report containing all the relevant information along with red flags (if there are any).
Overall, the processing time for a loan has been made much quicker due to such software. Hence, digital lending companies are leveraging these tools to be able to process loans much quicker than was earlier possible.
4. Quicker Disbursement
Further, the entire timeline of processing a loan has become much faster. Earlier, it used to take weeks. Nowadays, borrowers can avail of a simple unsecured loan within the space of a few hours.
A lot of digital lenders are now “pre-approving” loans. This means that the bank analyses the borrower’s financial statements and determines which loans they are suitable for. This has been made possible because banks have the financial data as well as the CIBIL score in a digital format. Hence, they can rely on software to analyse the data and come up with custom-made loan packages for each of their customers.
If a borrower wants to avail of a pre-approved loan, all they have to do is make a few clicks and upload a few documents. The loan will be disbursed to their bank account within the space of a few hours.
Further, even if they want to apply for a loan that is not pre-approved, the process has become much quicker. Nowadays, a lot of digital lenders are promising disbursement within 24 or 48 hours of application.
5. Minimal Paperwork
Traditionally, it was a headache to apply for a loan and process it. Mountains of paperwork were involved since all the documents were in physical form. A loan applicant had to fill in at least three or four forms, provide documentation relating to all aspects of the loan, and also provide photocopies of all the documents that were submitted.
Thanks to digital transformation, all this paperwork can now be avoided. All that the modern borrower needs to do is fill out the online loan application form and upload the relevant documents.
Digital lending is here to stay. It has made the process of lending much more convenient for both borrowers and lenders. Banks are quickly overhauling their old processes and embracing the new technology that makes it all possible. Online lenders are changing the game, and the lending business is modernising faster than ever.