As per a study by ‘Research and Markets,’ the Digital Lending Market was valued at USD 311.06 billion in 2020 and is predicted to reach USD 587.27 billion by 2026, with a CAGR of roughly 11.9% over the forecast period (2021 – 2026).

The pandemic has made digital preference a priority. Many banks and credit unions were compelled to go beyond physical connection and offer a purely digital experience out of necessity.

According to a McKinsey & Company survey, the typical “time to decision” for small business and corporate lending in traditional banks is between three and five weeks. The average “time to cash” is around three months.

Customers may come from a variety of backgrounds and seek the loan for several reasons, including personal loans, SME finance, and housing loans, among many others.

Traditional banking systems lack the agility and technological know-how necessary, to develop and provide cutting-edge financial products since they are typically cluttered with legacy systems and lack innovation.

Fintechs, in contrast, are technology-enabled financial service providers that use cutting-edge technology to offer effective financial services to the general public and challenge established financial service providers.

The impact of Digital on the Lending industry

Digital has in recent years altered the lending industry. The desire for better customer experiences, evolving business models, quicker turnaround times, and use of modern technologies like cloud, artificial intelligence (AI), and machine learning (ML) are causing the disruption.

Adoption of digital lending solutions is being fueled by a shift in consumer behavior

Customers are embracing digital channels because of the expansion of internet and smartphone use. Between 40% and 60% of all loan buy transactions are influenced by digital media.

Buy Now, Pay Later: A Boost for Banks, Pure-Plays and Businesses

The primary discovery tool for credit goods is online research. For credit products, about 55% of customers utilize an online tool or advice. It is anticipated that mobile will have an impact on 6 out of 10 personal loan transactions and 7 out of 10 transactions involving other retail loans as per study by KPMG.

To allow sustainable Digital Lending growth, financial institutions (FIs) must consider six key themes.

1. Automated decision-making

Credit decisioning must be done quickly in a world where loans must be issued in a matter of minutes. That does not, however, imply that FIs should abandon strict underwriting guidelines. The process may be accelerated and made more objective with the use of alternative data driven by ML algorithms.

2. ‘Data as money’ treatment

Developing data-driven and data-backed surrogate lending programs that use consumer behavioral data via ecosystem collaborations boosts to growth.

3. Intelligent automation

Intelligent AI/ML-led operations for originations, underwriting, and servicing are critical for sustained digital growth.

4. Infrastructure that is adaptable

A cloud-first technology approach is crucial for addressing the resilience necessary to sustain the size of digital lending, particularly during seasonal events in the nation where disproportionate growth is anticipated.

5. AI-powered intelligent monitoring and collecting

To enable sustainable expansion of the digital lending book at scale, FIs should progressively rely on AI/ML-led predictive monitoring and collections models, utilizing customers’ application score, behavioral score, and ecosystem score.

6. Rethink the Consumer Experience

With more financial institutions adopting to digital lending, simplifying the procedure while fulfilling all risk formalities is vital and will set each FI apart from the others.

Creating an effective digital lending transformation

There are no one-size-fits-all solutions; but, to develop an ecosystem for smaller sectors of financial institutions, interlocking elements that can be snapped together rapidly are required.

To increase corporate efficiency, satisfy regulatory requirements, and recruit new clients, Aspire’s Bank in a Digital Box (BiDB) employs a Minimum Viable Product (MVP) and add-on methodology.

BiDB’s Microlending Avatar may assist by offering Hassle-free access, Fast loan processing, Smart decisioning, and Marketplace integrations.

While the obstacles of digital lending transformations are significant, and the road to ultimate success can be difficult, precedent has shown that the efforts invested are more than adequately compensated in competitiveness and profitability.