Digital Lending Software: How Technology is Changing the Lending Landscape
May 20, 2021
Digital Lending Software and Us.
Today the impact of digitalisation is sweeping across almost all aspects of our daily life. It has become a tool for transformation in the way we transact, interact and conduct our business. One such important aspect of our life where digitalisation and AI has brought about radical changes is lending/borrowing by FinTechs and banks. According to the EY Global FinTech Adoption Index 2019, 93% of FinTech SMEs prefer a technological solution over manual or traditional method wherever possible. In order to focus on developing innovative products and catering to low income, semi-urban and rural customers in unorganised sectors, FinTech lenders are adopting business and operational models fuelled by cutting-edge technologies such as big data, open Application Programming Interface (API) and Artificial Intelligence (AI) that facilitate the design, launch, implementation and execution of tailored products and services in a seamless manner.
With the advent of digital lending software, we are looking at paperless, affordable and tailored solution to time-consuming, cumbersome and lengthy loan approval process, which also offers close monitoring of borrowers along with cost saving benefit and customer satisfaction. Digital lending models are today addressing the huge unmet demand for credit. India’s digital lending software market is expected to see a CAGR of 36% by 2023 (Industry FinTech Report).
So, what exactly is Digital Lending?
Digital Lending is simply automating the process of lending- right from the point of application for a loan to its disbursement through web platforms or various mobile applications by making use of technology. Lenders use data held in digital form to make credit decisions and build customer engagement. Digital credit would cover all kinds of credit facilities offered by online lending platforms that are not operated by commercial banks.
The key digital lending models in India
- P2P lending: Digital marketplaces connect borrowers (both individuals and organisations) with lenders, allowing quick access to low-cost loans.
- Invoice financing: Short-term working capital credit to MSMEs, based on their unpaid customer invoices, to meet MSMEs’ short-term liquidity requirements.
- Crowdfunding: Digital platforms that enable investees to raise external credit from a large group of investors, by allowing investees to exhibit their business cases, funding requirement and market potential.
- Pay later loans: Lenders disburse instant, small sized loans with the ‘buy now and pay later’ model for meeting customers’ purchases.
- Mobile lending: Lenders offer mobile loans to customers by assessing their creditworthiness by leveraging mobile phone data such as call patterns and mobile e-money usage.
- Digital mortgage: Lenders facilitate mortgage purchases through end-to-end digitisation of the traditional mortgage loan process, from the application stage to disbursement, through digital channels in order to reduce the high turnaround times prevalent in the existing traditional model.
- PoS lending: A partnership model with Financial Service lenders where these players finance online shoppers’ purchases by utilising both conventional data like bank statements and unconventional data like online transaction history.
- Supply chain financing: Marketplaces tie up with direct lending NBFCs to target merchants selling their goods and services online, by leveraging the huge amount of merchant data available on these online channels.
The Digital Lending Process
It can be broadly broken down into five steps:
- Customer Acquisition – In order to acquire customers, Financial Institutions use various digital marketing tools such as social media campaign, SMS blasts, search engine optimization, Secure Quick Response (SQR) codes etc. Lenders rely on aggregators such as Amazon, Flipkart etc and authorised Direct Selling Agents (DSA) like BankBazaar among others to source borrowers.
- Approval Analytics – With access to digital data, now the lenders can build their own data bank which in turn facilitates their underwriting decisions. As these underwriting decisions are automated, they are more accurate and way quicker than the ones derived solely from conventional methods. Advanced algorithms and Analytics are used to make quick and remote credit decisions.
- Disbursement and Repayment – Disbursement of loan and collection of repayments is carried out remotely and digitally by the lenders by making use of digital channels such as bank accounts, e-commerce accounts or mobile wallets that are integrated with Third Party Integration. Such channels offer increased operational efficiency and also reduce occurrences of fraud.
- Collections – Algorithms and digital data are leveraged to support the collection process. Delinquency scorecards are employed to track customer behaviour and propose customised recovery strategies. Delinquent customers thus identified are blacklisted and lose access to future credits.
- Customer Engagement – Customer engagement is necessary at every stage of the lending process. Large sums are invested by lenders to learn about customer behaviour, choices and preferences. Customised and timely inbound and outbound communications are made to the customer.
Benefits of using Digital Lending Platform
- One of the most distinct advantages of digital lending is speedier approval of credit. With digital lending software, lenders can now simplify and automate the decision making process. A single, integrated digital lending platform not just ensures that lenders can quickly process the background verification but also that customers can get quick response after applying.
- Features of digital lending platforms are user friendly and require minimal manual intervention. They streamline the entire lending process, making it suitable for first time borrowers who are mostly millennials and comfortable with automation. Applications are processed without any risk of human error or bias, making the user experience efficient and enjoyable.
- To understand the market trends, customer behaviour is tracked with the help of analytics. These analytics also provide vital information regarding scope of improvements in the process. With the help of such data lenders can acquire a fair understanding of the inputs that drive market strategy.
- Digital lending platforms have been known to cut overhead costs by approximately 30-50%. There has been a paradigm shift in the lending landscape and the benefits of digital processing are far too great to be ignored. By utilising digital footprint as substitution for physical document verification, it offers significant lower operational costs.
- With human judgement being replaced by auto decision rules in digital lending software, possibility of human error is removed and consistency in processing is maintained throughout. Every applicant is evaluated uniformly as per the permissible risk limits. Pre-configured rule sets and credit policies are followed consistently within the software.
- To optimise returns, lenders need efficient underwriting and optimised decision making capabilities. With digital lending software, a combination of machine learning and artificial intelligence ensure that underwriting expertise offered by it is better than human judgement.
The way forward –
Digital lending has brought about some serious disruption across various spheres like customer engagement, credit assessment, underwriting, governance, compliance among others. It has changed the way lenders do business and customers procure loans, forever. It is expected to bring data and analytics driven expansion into new consumer segments and business models in the upcoming future. A code of conduct that outlines principles of integrity, transparency and customer protection needs to be strictly followed to avoid misuse of such processes for unfair and criminal activities.
We, at Scoreme.in, are committed towards our endeavour of being able to revolutionise the lending space in our country. With advancements come growth and we are committed to bring about positive change in the business ecosystems. Scoreme digital lending software is apt for the purpose of reducing lending times while ensuring that the due diligence is not compromised. With products such as Bank Statement Analyzer, Data Aggregation, GSTR & ITR Analysis and Credit Monitoring, among others, we form a single point of contact to ensure a seamless and smooth documentation process, albeit digitally.