Lending is the lifeline that fuels the financial growth of all businesses and individuals. In such a scenario, having a robust lending system becomes imperative for the overall growth of the economy. As the entire global financial systems make a rapid shift towards digitisation, this has forced the lending industry to look beyond the traditional approach towards loan origination and loan management.
A Brief Journey to the Digital Lending Era
New loan origination in 2019 had increased by 30% than it was in 2018. Unsecured lending (personal loans, housing loans, and finance and consumer durable good loans) contributed the most to the increase in the volume. Let’s take a look at how the digital lending era came into being…
The Manual Processes of the Pre-Internet Era
In the pre-internet era, loan approvals and recoveries had to be managed manually, and all the details were tracked in papers. Mortgage-based loans where the collateral is mandatory used to be the most preferred type of loan. Usually, the banks and non-banking finances used to accept gold, lands, and documents related to other material properties as collateral.
In-Person Approach of Traditional Loan Management Era
In the pre-internet era, traditional loan management systems expected the most important transactions like applying for new loans, submitting collaterals, repayment of EMI, applying for a loan extension, etc., to be done in-person in the offices of the banks or the financing companies. The collaterals collected were stored in physical lockers, and maintaining the storage space by itself was a big expense for the financing firms. In the entire lifecycle of the loan process, the customer had to visit the branches several times.
The Dawn of the Internet
The computer and Internet era changed this to some extent. The overall percentage of salaried professionals has also increased radically. Especially in developing nations, this has enabled a change in the lending landscape to cater to their increasing needs and paved the way for the emergence of newer lending products.
This includes the launch of personal loans, short-term credits using credit cards, etc. These novel lending products do not require any collateral and are issued purely based on the customer’s credit rating and ability to repay. Most of these loans are disbursed by just a single call with the loan agent or a single online application form.
The Loan Management System allowed the frequently done activities like repayment of loans, applying for loan extension to be available online for the customers. Yet, certain categories of loans still demanded the customers walk into the branches several times and have discussions with loan officers.
The Virtual Upheaval of a Modern Loan Management System
With the digital transformation taking the next big leap in the financing sector, the opportunities and scope to provide more with less have only increased further. For a lending institution to be successful and ahead of its competition, having a good loan management system that is digitally advanced becomes quintessential.
Most of the lending products in the consumer and SME lending space alike, are becoming digitized and virtual. The customer does not require to visit the branches even once in the lifecycle of the loan.
With digitisation going at such a rapid pace in the financial industry, smart and tech-savvy digital products are emerging in the market to take the entire loan processing experience to a different level. These smart digital products do most of the jobs in a click of a button or a mere swipe, thereby shifting the overall lending process to a virtual channel.
Smartphones are becoming smarter by day, tablets and digital watches are becoming the most common banking and lending channels among the current generation of tech-savvy customers. Almost all lending institutions are shifting to digital means to launch interesting products to stay relevant in the market.
Top factors of a Modern Loan Management System vs. Traditional Loan Management
Here’s how a virtual experience of the modern lending system has challenged the status quo of the lending industry:
1. Automated Tools and Services
It is essential to have a healthy array of tech-savvy digital products in the ambit of the loan management system to cater to the customers’ ever-changing behaviour and stand out from the competitors. The products that offer cutting edge features like live account opening through interactive robots, integration with virtual assistants, servicing through automated chatbots are definitely expected to have an edge over the traditional loan management systems
2. Quick Financing Options
Today in traditional banks, the average “time to decision” for small business and corporate lending is between three and five weeks and the average “time to cash” is nearly three months. Due to an in-person approach, these times will soon become obsolete. Leading NBFCs that have embraced the digital-lending revolution, have the potential to bring down their loan approval timeline to five minutes, and loan disbursal to less than 24 hours.
3. App-based Lending Platform
As the economy grows, the number of SMEs who need funds to grow their business increases. So it becomes paramount to have simple yet powerful loan origination and management products that quickly validate the SME’s creditworthiness and provide microloans or instant loans for different tenors ranging from 1 day to 30 days repayment cycle.
There is a surge in app-based lending platforms in recent years, mainly targeting the SMEs to provide quick loans. As more and more SMEs go digital in the years to come, these app-based lending platforms are expected to play a pivotal role in the growth of the companies.
4. Targeted Marketing
Gone are the days when customers had to queue in the premises of the lending institutions even for smaller loans. The lending industry has realised the need to tap the digital demand and has taken a big leap in their marketing efforts.
Since these marketing campaigns are targeted and behaviour-based, the turnover ratio is high for these loans. With the advancement of behaviour-based digital marketing, the lending institutions’ scope to fund different products has increased exponentially.
It is exciting times for Fintech companies that leverage innovative lending platforms. The scope for providing cutting-edge products has increased exponentially due to the proliferation of digital channels.
Most of the Fintech companies have also started allocating a good budget to invest in cutting-edge products compared to their competitors. The road ahead for these Fintech firms in the digitisation joinery is very promising. The longer they travel, the more they invest in a robust lending management system that will definitely challenge the status quo of the lending industry and open up newer avenues of income.
At Finezza, we understand the demand of this generation and we are constantly upgrading our services to adapt to the future. We help lending firms leverage analytics to underwrite more loan applicants and identify the risk profile of borrowers that traditional underwriting methods may not detect or comply with regulations. Contact us today to find out more about our dynamic Loan Origination System (LOS) and Lending Management System (LMS).