India’s digital lending market is expected to grow to $1.3 Trillion in 2030, says Inc42.
Technological growth, higher internet penetration and the tiresome loan application process in traditional banking establishments have pushed many towards digital lending. Moreover, customers’ demand for a faster and simpler loan application process has propelled lenders to go online and adopt fintech solutions. As a result, lenders increasingly rely on digital channels and mobile applications to respond to customers’ needs.
These developments in the fintech sector will shape the lending landscape in 2023. Lenders who don’t keep up with the changing market demands might lose customers to competitors who offer a quicker and more efficient process. Hence, it’s crucial to be aware of these developments, the associated issues, and the steps towards success.
This article will cover key points related to the significant contours of digital lending.
Prominent Trends for Digital Lending
With increasing number of people and businesses turning to digital lending, the industry is expected to grow.
Here are key trends that’ll shape its landscape in the coming years.
Advancements in technology
The recent developments in artificial intelligence (AI) and machine learning (ML) algorithms have assessed borrowers’ creditworthiness easier. These algorithms can analyse massive amounts of data, including financial statements and social media profiles, to make more informed lending decisions.
Additionally, advancements in mobile technology and the increasing use of smartphones and tablets have made it easier for borrowers to apply for loans. Digital lending platforms also use encryption and secure communication protocols to protect personal and financial information and prevent fraud. Overall, technology makes lending more efficient, convenient, and safe for borrowers and lenders.
Changing customer behaviour
Another factor driving the growth of this sector is the increased convenience that comes with technology. People have become more accustomed to modern technology in their daily lives, so they are more open to using digital lending platforms to apply for loans.
Moreover, greater access to information allows customers to quickly research and compare different lending options, increasing their awareness and expectations of lending products. They can also access the loan products from the comfort of their home at any time and often receive a decision in minutes. This convenience contrasts with the traditional loan application process, which requires customers to visit a bank or lender in person.
Few Challenges to Overcome
Although digital lending is a rapidly growing industry, it doesn’t mean there are no challenges. Here are a few hurdles digital lenders face.
Data privacy and security issues
Data privacy and security is a critical challenge, as borrowers’ sensitive personal and financial information is at risk. If this critical information, which includes personal identification numbers, bank account details, and credit history, is not protected properly, it could fall into the hands of cybercriminals. They can use it for identity theft and financial fraud.
Hence, lending companies must implement strong security measures to protect against hacking, phishing, and cybercrime. This includes implementing firewalls, encryption, and other security technologies, as well as regular security audits and vulnerability assessments.
Compliance with regulations
Another challenge digital lenders face is compliance with a wide range of regulatory requirements. Different countries have different laws and regulations governing personal data collection, storage, and use. Lenders must ensure that they comply with these digital lending guidelines.
However, often this is a complex and time-consuming process. Lenders must continuously monitor and adapt their security measures to stay in line with the changing regulations.
Route to Success in Digital Lending
Let us focus on some crucial recommendations for digital lenders to capitalise on the growth.
Leverage technology to improve efficiency
As financial technology gains steam, lenders who fail to leverage technology risk losing customers to competitors who can offer more convenient and efficient services. Technology can help financial institutions automate repetitive tasks, reduce errors, and improve the overall speed and accuracy of loan processing.
Fast and reliable data analysis
Additionally, technology can enable lenders to analyse data better and make more informed lending decisions, ultimately leading to increased profitability and growth. So, use software to automate repetitive tasks such as data entry and loan underwriting, which can save time and reduce errors.
Deploy Auxiliary Platforms
Also, you can adopt digital platforms that offer online loan applications, e-signature, and other digital services. This will improve the customer experience and increase convenience for borrowers.
Partner with third-party solutions
Lenders should team up with third-party solution providers because they can provide the expertise and technology needed to quickly and effectively implement digital lending platforms and services.
They’ll provide scalable solutions to help you grow and adapt faster. This is particularly important for smaller lenders who may not have the resources and infrastructure to develop and maintain their platforms. Also, they will keep you up-to-date with the latest technologies and trends, which can help you stay competitive.
The evolution of technology and changing customer attitudes are vital features responsible for The future of digital lending and its growth. However, significant challenges must be addressed, such as ensuring data privacy and security and complying with rules and regulations. Lenders must leverage technological advancements and build partnerships with third-party providers to successfully navigate these challenges and capitalise on the opportunities.
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