While conventional banks are making the transition to become more digitally-driven, there is a whole section of non-traditional financial services that have sprung from the womb of technology and are now commonly referred to as fin-techs (financial technology startups). In terms of the digital life-cycle, they are well ahead of the competition, bringing in speedy, creative solutions while transforming the face of the banking sector through seamless digital credit lending. Digital lending is the act of making loans available online, and it offers a number of advantages over the traditional loan application procedure. Because of its digital character, online credit may be obtained without the need to visit a physical branch, as is the case with traditional lending. This makes digital lending services more convenient than traditional lending.
What is traditional lending, and how does it work?
Traditional business loans or lending are supplied by traditional financial institutions such as banks and lenders. In the case of small and mid-sized businesses, this sort of debt financing is the most prevalent type of debt financing available. Traditional finance, as compared to other commercial loan choices, often offers the lowest interest rates and the most favorable conditions.
What is exactly digital lending?
Digital lending is the term used to describe acquiring credit or loans via the use of the internet. In addition to the rising prevalence of smartphones, the desire to make transactions using your favorite payment methods, the flexibility of credit ranges, and the speed with which online transactions may be done, it is becoming increasingly popular among new-age lenders. In order to underwrite in a quick and effective manner, fintech organizations examine digital payments data, which is typically done in near real-time. Because of this, financial technology’s credit-based payment solutions will eventually replace all real-time transactions that occur via the internet, and this will happen in the not-too-distant future. This has resulted in digital lending being recognized as a technology that helps financial institutions boost efficiency and loan revenues while also giving quicker service at the point of sale (PoS).
It is gaining popularity for the end-user side because;
- There is no longer a requirement for buyers to engage with sellers in a physical setting due to a shift in consumer behavior. Consumers are increasingly reliant on internet reviews, videos, social media, and websites to help them make purchasing decisions. Likewise, financial transactions fall under this category.
- In traditional lending, your eligibility is decided by a wide range of various characteristics such as your current income and job history, your financial assets, and, most importantly, your credit score. In addition to your income and credit ratings, online lenders take into account additional aspects such as social media authorization, educational levels, and professional past, which creates huge flexibility for the younger generation.
- You will be required to provide several papers, such as income tax records, property ownership deeds, and other personal information, in order to be authorized for a traditional loan. The amount of paperwork required by digital lenders has been greatly reduced. All you have to do is submit scanned copies of a few important pieces of documentation.
- Another key distinction between traditional and digital lending is the time it takes to process and disburse funds. The time it takes for a bank to clear and complete your loan application might be weeks or even months if you apply via them. The cash in your bank account is usually available within a few working days if you choose a digital lender who processes loan applications in hours rather than days.
- It is not only the advancements in mobile internet technology that are beneficial to the financial sector, but also the breakthroughs in biometric technology such as retina, thumbprints, face recognition, blockchain, and other similar technologies playing a critical role in digital lending and lending in general.
- With digital lending services, you may have a flexible credit line that can start with very small sums of money. When it comes to digital lenders, these are typically regarded as small-ticket loans. Furthermore, you have the option to repay these loans over a flexible period.
How is the digital lending process more efficient for lenders?
If you submit an application package that includes electronic paper forms or emails, the loan package is received by a digital lending platform that will process your loan application. In general, they use your custom business rules or even AI to automatically check each document for completeness and even to find exceptions, and they do this automatically.
Novel automated document recognition and data extraction capabilities combined with an additional layer of supervision will trigger notifications to designated individuals in real-time if, for example, specific documents are missing from the application, data has not been entered, a contract does not contain all pages, or signatures are missing from the contract at this stage of the process. These notifications will prompt designated individuals to take appropriate actions in real-time.
Once an application package has been created, the critical data is made accessible to activate the downstream processes in your organization. Using live dashboards, you can keep track of the progress of your application packages at any point during the process. Detailed reports on your loan activity, volume, and statuses may be generated to give valuable insight into your business.
Digital Lending in Finance Industry
In today’s digital environment, it is critical to optimize the loan process in order to provide better client experiences while also accelerating response times. Customers have come to anticipate a simplified loan process. As a result, whether clients want to finance a vehicle or apply for a personal loan, digital procedures to speed lending are vital to success. It is essential for lenders to be able to handle huge quantities of applications quickly and effectively if they are to remain competitive in the lending business and assist in managing the fast digital transformation. Many payment solution providers have offered digital lending solutions-oriented at financial services based on the digitization of loan papers.
Providing great customer experiences while automating the approval process, lowering operating expenses, eliminating mistakes, and speeding up response times are all possible. Consequently, customers will be delighted, and company outcomes will be improved. This is because digital lending solutions employ intelligent automation to significantly decrease process complexity and cut processing time, improving the onboarding experience for new clients.
These enhancements guarantee that your loan procedure gathers the appropriate information for straight-through processing. It is not enough to just select a lending software solution and integrate it into your company’s operations to benefit from digital lending platforms for lending companies. There are several important variables to examine in this situation, including how streamlined the platform’s workflow is, the convenience with which it can be configured, regulatory compliance, and the ease with which API connections can be accomplished, to mention a few.
Last Thoughts
The ultimate answer is that digitizing lending enhances the consumer or member experience in a variety of ways, including speeding up the process and boosting transparency. It also improves the efficiency of the financial institution, which can result in more profits or more resources for enhancing service or lowering fees and charges for customers. Besides, digital lending provides financial institutions with the flexibility to continue to develop their portfolios without having to recruit correspondingly large numbers of employees or increase risk.
