Digital lending platform: Providing new business horizons
The contemporary lending
platforms have started exploiting Artificial Intelligence and Machine Learning
technologies to produce valuable insights from additional data sources.
Analyzing digital footprint, for example, has helped bring in a comprehensive borrowers'
evaluation. The removal of manual touchpoints also accelerated the time needed
to make credit decisions.
Through supporting small
businesses with finance, these platforms help create jobs and help the
country's overall financial growth and, most significantly, introduce new
companies that succeed with good business models. These digital platforms also provide
versatility around making along with being more open compared to traditional
financial systems. Such new-age platforms, which serve as a springboard to
build a good credit history particularly for underserved borrowers, can further
enable them in the future to access credit from other outlets.
What is a digital lending platform?
Consumers expect seamless
interactions in all aspects of their lives in the progressive digital world. A
digital lending platform simplifies the process of securing a mortgage, home
loan, or savings account, allowing borrowers to close more loans at a lower
cost while building stronger, long-term customer relationships. Over the past
years, digital lending has been a growing global trend. It may initially have
been rejected as a 'buzzword' without a commonly defined concept, but all
business concerns have been overcome by the bold foray of Fintech startups and
tech giants into the grey space.
Why digital lending?
Increasing customer expectations
and standards for alternative methods of borrowing money have opened up new
markets. And businesses, as a differentiating factor, have always been prompt
in understanding the importance of customer experience. They take the
opportunity to improve efficiencies, cut costs, and grow proactively.
The explosion into the financial
markets of tech-savvy Millennials and Generation Z customers has caused a
fundamental shift in consumer perceptions and behaviors. Instant gratification
is their secret, and digital activities like online food ordering, cab booking,
and grocery/essential shopping have reinforced this approach only. They have a
stronger emotional connection with brands like Apple, Uber, Amazon, and Google
that have pioneered in new-age technology. Both digital interactions seek to
emulate the perceived ease of use and satisfaction of digital-only products
(e.g. Dropbox).
Marketplace Lending Platforms
P2P platforms use advanced credit
modeling and lending underwriting, integrating several data sets (beyond credit
scores) to reach a wide range of potential buyers, benefiting even those
lenders who are rejected by the traditional bank credit scoring system. P2P
platforms provide automated loan selection features for borrowers, where
investors may set predefined conditions for loans they intend to buy.
There is also the opportunity to
invest up to 100% of capital. The key strength of the P2P platform lies in its
simplified process of lending through an online interface. While many of the
platform's features favor lenders, the consumer also benefits from the
platform's widespread acceptance. Key features include a quick online review of
interest rates by presenting some basic income, credit score, etc. information
on the P2P website, real-time notifications of the approval and financing process,
after approval, the applicant can quickly access the percentage of the loan
that has been funded.
Digital lending solutions for small to mid-sized businesses
· The gap
For decades, the disparity in
structured finance availability has troubled the small and medium-sized
businesses. Notwithstanding attempts to increase bank credit flow to this
section, much of the funding still comes from an informal source. Fintech
companies could start making a dent in this unmet need for funding at a time
when more businesses join the formal sector. A key change that will encourage
these businesses to obtain structured loans is the transfer of MSMEs from the
informal sector to the formal one. This change is driven by the Goods and
Services Tax and digital payment options are available.
· Risk analytics and digital lending adoption
A risk analytics software can
deliver the big data functionality needed, tailored to the specific operational
climate. Modular platforms help to mix and match resources according to needs.
Besides, strategic partnerships are used to collect data from a variety of
sources, adding value to the analytics processes by integrating a wider range
of data sets into the decision-making process.
While customer-based apps and
services may seem to be the most urgent elements of an online program, positive
customer experience can't be generated without back-end systems that help make
prompt decisions. This is where tools for risk analysis come into play and can
help the bank successfully launch a digital lending initiative.
· Streamlines decision making
The biggest attraction is the
time to decision making. The average decision-making time for small business
loans is 3 to 5 weeks. The average cash time is nearly three months. For a
small business that requires a cash injection in a hurry, this waiting period
is a real issue. Also, lenders will want to reduce this time gap at the same
time. It will not only be cheaper, but it will also increase the number of
loans they can make, leading to higher profits.
For example, mortgage owners
could benefit from the digital analysis that not only provides them with a
faster response but also develops a more tailor-made package to meet their
needs. Insurance companies can also use digital loans to streamline procedures,
save money, and provide more tailored policies. Financial services can track
clients and provide real-time guidance that is more accurate, personalized and
instant.
To sum up
The digital lending platform market, as
an emerging industry, paves the way for building trust, transparency and
changes the way alternate financial services are viewed worldwide. Ultimately,
the ease and seamless experience of using digital lending platforms and their
ability to fill the credit gap for underserved individuals and corporate
borrowers leads the industry to exponential growth.
Nevertheless, these networks will
never erase conventional FIs from the ecosystem of lending. Instead, they will
partner in building a balanced and inclusive lending infrastructure and
collaborate with the incumbent financial institutions. The synergy between the
traditional institutions' tech-enabled platforms, data-based insights, and
scale will open up intriguing avenues for expanding credit reach to a wide
range of underserved segments in the future.
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