Digital Lending
Posted on
March 17, 2021
Digital lending is revolutionizing lending processes and offers too many competitive advantages for lenders to ignore. Innovation in digital lending is enabling lenders to offer better products to their customers faster, more cost-efficient and in an engaging way. In the Amazon era where customers expect service with fast turnaround and efficient services, traditional lenders have no choice but to adopt digital strategies to remain relevant and competitive.
Although integrating digital lending practices into the lending process is challenging, ignoring the digital lending process is detrimental. If done correctly, it will help lenders evolve, scale, and be competitive in the marketplace. Customer expectations are changing rapidly, shaped by the use of smartphones, social media, and e-commerce. Lenders develop their digital lending capability or partner with other organizations or a combination thereof.
While the ‘correct’ mix of digitisation might vary, adopting a digital lending process offers several key advantages – lower operating costs, faster turnaround times, improved understanding of customer behaviour, lower delinquency rates, and enhanced customer engagement.
What is digital lending?
The Digital lending process broadly refers to a sequence of activities to be performed to provide a loan. From acquiring customers, onboarding, assessing credit, and disbursement of loans to receiving repayments and managing collections form core steps of a lending process. Digital lending refers to managing the entire lending process by using the right technology to enhance customer satisfaction.
Key Pillars of Digital lending
Digital lending can mean many different things to different lenders based on their perspective of their customers and market. However most digital lending processes incorporate the following 3 key pillars
- Use of digital Channels: Efficient digital channel enables customers to engage with the lender easily, wherever and whenever they want. Digital lenders use digital channels to reach new and existing customers to enable them to apply for credit, receive loan disbursements, access information about their accounts and enable multi mode payments.
- Consume diverse data: Digital lenders depend on diverse data sets to evaluate their customers. Bank payments, bill payment history, invoices, credit bureau etc to assess credit worthiness. Customer data is also leveraged to enhance engagement.
Focus on customer experience: One of the most deterrent process of traditional lending is onboarding. Filling the several forms consumes time, is expensive and many times might lead to customers losing interest. Use of digital onboarding, video KYC and India stack reduces onboarding time to minutes resulting in increase in consumer experience.
How to enable digital lending
Organizations need to go through an evolution to embrace digital lending fully. Early stage adopters start with transforming the customer acquisition process. Shifting from paper based onboarding to app based onboarding.
In the case of ‘touch and tech’ process, the loan agents are equipped with applications to enable digital onboarding. Use of digital KYC mechanisms such as video KYC and India Stack for KYC is a common practice. However many of the backend process are still managed in the traditional sense. Implementing a robust Loan Origination System ( LOS) is key at this stage. A fully-integrated LOS will offer lenders both offline and digital processes and streamline the lending process.
Organizations who push forward in their transformation journey will enhance their customer engagement by enabling their customers to manage the majority of the account functionality.
Implementation of a robust digital-ready lending management system ( LMS) offers customers to completely digitize management of their loan book. An LMS enables a data driven approach to managing delinquencies, analytics and enhanced collection management. A robust collection management system enhances collection ratios. A digital-ready LMS enables a lender to keep real-time track of the entire lending book.
Ability to assess credit is the cornerstone for digital lending. Lenders need to transform from the current rule based credit engine to credit scorecard system. In order to move to digital credit assessment, lenders need to organise existing data about their customers and identify new data points to collect. Using the existing credit history, lenders need to develop an intermediate credit scorecard approach before moving to a fully automated / AI & ML based system.
How do you start?
Given the vast scope of digital lending, it can be difficult for lenders to know where to start and how to start on this journey. Firstly lenders need to assess and build your readiness. The least risky mechanism is to first transform your onboarding process. Adopting digital form filling, KYC, and India stack for simplifying customer onboarding journeys.
Next is to identify product and market segments that can be completely managed via digital lending. There is no need to incur capital expenditure for digital lending. There are SaaS based technology providers such as Novopay who offer you an entire digital lending suite on a pay-as-you-go model. More importantly, it is the organizational change that is required to embrace digital technology for the lending process.
A particular product / market segment is fully functional on a digital platform, it is important to define metrics for measurement of success factors. Based on the metrics you need to define success criterias for extending the digital lending ecosystem for all your products. Such a process carries lesser risk in terms of disruption of your existing business and significantly less capital expenditure for technology.
Technology landscape is moving very fast. Identifying what is next for digital lending is a moot exercise. However on-the-ground implementation of digital lending is imperative for growth. Implementing a digital lending ecosystem is challenging. We have outlined some common pitfalls and simple but effective methods for lenders embarking on this journey.
Novopay offers an end-to-end digital lending technology platform both as a SaaS and an enterprise solution. Contact us for a more detailed discussion to digitally enable your lending process.
