The present global crisis or the pandemic, has brought about one major revelation in the financial sector. All those banks that had adopted Information Technology inherently in their operations much before the start of crisis, came out to be absolute resilient when the crisis hit. Although these banks are having a fewer Non-Performing loans (NPLs), they are issuing loans at these times of crisis, too! Fin Tech Lending has become a new norm today and is being considered as an accelerator for financial stability in the market. The crux is, how technology is driving Fin Tech lending? In one word, it is digitalization! It is the Digital Lending that is transforming the financial set-up and enhancing customers’ experience.
Lots of questions cropping up in mind now? Let’s walk through!
Digital Lending as a Concept
With the onset of Fin Tech in Loan segment, the lending process has changed drastically and for better only. No more cumbersome paper-work. Loan-disbursement is possible now in a span of mere few minutes. How? Because of Digital Lending platform! The entire process is done through the electronic means.
If you want to buy a car, you apply for a car loan. If your friend wants to buy a property, he will go for a home loan. When your children go for higher studies abroad, education loan is the right choice. Even a personal loan can serve your purpose!
Not only you, your friend, your children but banks & financial institutions lend money to corporates and enterprises so that they (the borrowers) can execute projects and build products. Here, banks & financial institutions are the lenders while all others are borrowers. When the lending process involves information technology, it becomes a Digital Lending.
How IT Is Helping Loan Segment – The Very Digital Lending
We live in the era of Millennial and Generation Z, communication is in their fingertips. When they were born, mobile phone was already there. If they could click memories, share thoughts right from their birth, how could they lag behind in the lending process? Their expectation is naturally high! Let’s navigate the technology that are helping them in the digital lending segment-
Robotic Process Automation or RPAis not a cutting-edge technology but increasingly gaining momentum in the Digital Lending process. Lending Management Automation is the RPA being widely used in the segment. As per SSON Analytics, Banking industry, along with Financial Services & Insurance industries, forms the topmost layer for using RPA solutions due to their inherent benefits.
Documentation Automation helps lenders to automatically extract customers’ data from their documents. Enterprise Automation allows customers to fill electronic forms for applying loans. Dedicated portal is available where this form exists. Once the form is submitted, an automated workflow will start operating in lender’s place. Everything in a flash of seconds. Moreover, customers can view status of the process anytime.
Electronic Signature allows customers to sign the documents online. No need of handwritten signature on a paper form. The system allows auditors to examine loan files in a most digital manner.
AI Credit Scoring Models
AI is helping banks to make an effective credit decisions. AI- Credit-Scoring models help banks become a competent estimator to figure out who will repay and who will default. Thus, banks have track records of loan repayment of customers in the granular form. The data are aptly valuable to understand the market dynamics as well.
How AI & ML determine Credit worthiness
As mentioned earlier, banks and other lending companies use AI models for risk assessment. In the past, lenders used to make assessment based on just FICO score & income. Now, they are assessing the entire life of an individual, their vast digital footprints, in order to determine if he can be a defaulter in future. This process is also referred as “Alternative Data” of the future borrowers. It helps to determine the credit worthiness of potential borrowers even without having any credit history.
Shift from 3-6-3 formula to 3-1-0 System
Heard about ANT Financial? It’s all about Digital Lending.
Digital lenders such as banks and Fin Tech companies are allowing customers to have exceptional digital borrowing experience. Digital lenders have to keep pace with customer’s demand and maintaining trust and loyalty is the core of any transaction or business. The ChatBots, using various analytics, are capable of giving relevant insights to customers while AI and ML help banks to know the earning and spending pattern of customers and analyze risks involved. Technologies like biometric-led authentication, e-mandates, e-signatures, AI, ML, Blockchain are using the ‘zero- human- touch’ lending & monitoring process.
According to a recent Boston Consulting Group (BCG) report, Digital Lending is going to become around $ 1 trillion opportunity in the coming five years. Indeed a good news for the Financial Lending Segment. So digital lending is just going to be a smarter, convenient and fastest mode to avail loan in modern ecosystem. Are you a bank, financial institution, Fintech or a startup engaged into loans sector?