Traditional lending platforms depended on human intervention and physical interactions at every stage, which increased processing time and the possibility of human error. However, digital lending platforms allow banks to automate their whole loan process, improving client experience. The worldwide digital lending platform market was estimated at USD 5.84 billion in 2021, according to Grand View Research, with a compound annual growth rate (CAGR) of 25.9 percent projected from 2022 to 2030. The advantages provided by digital lending platforms, such as enhanced loan processing, faster decision making, compliance with regulations and rules, and enhanced business efficiency, are likely to fuel market expansion.
Digital lending is imperative in today’s world
Lending is undergoing a fundamental change. Lending is experiencing a significant shift from the classic 3-6-3 formula to the 3-1-0 formula (Boston Consulting Group). The 3-6-3 formula is more common in conventional banking, which means grow deposits at 3%, lend at 6%, and play golf after 3 PM. However, FinTech-powered digital lending organizations use the new worldwide formula 3-1-0, which stands for 3 minutes to decide, 1 minute to transfer money, and 0 personal interaction.
Executives at banks and credit unions want more consistency in the loan approval process as well as portfolio management. This consistency may be achieved across individual lenders as well as lending units within the organization by employing integrated data in a single loan origination system.
A digital lending platform that lowers overhead by 30–50% equals more time saved, more money, and more possibilities for growth. The one platform concept increases efficiency by removing operational barriers like as IT support, loan staff training, and vendor administration.
A bank or credit union becomes more productive and has greater bandwidth to generate new business by minimizing time and expenditures throughout both the origination and portfolio management stages. By optimizing technology, banks and credit unions may control expenditures and costs based on the efficiencies of a single lending platform.
Paperless procedures safeguard employees as they transfer large amounts of supporting documentation through underwriting. They also simplify and standardize portfolio management, adding much-needed structure to an otherwise chaotic environment. Online portals offer secure communication routes for both borrowers and lenders.
The pandemic has highlighted the significance of having a secure, 24-hour-a-day digital route to completely service consumer and business borrowers remotely. Cloud and mobile technologies enable lenders to operate productively wherever they are – in the branch, at home, or on the go.
Digital lending platforms are disrupting the sector
Machine Learning and Artificial Intelligence –
Previously, lenders evaluated FICO Score and income to establish an applicant’s solvency. Artificial intelligence and machine learning examine alternative information about the borrower, such as their social media account, Internet habit, education level, wallet usage statistics, and other data.
Based on the information gathered, AI and ML assign a rating to the client and evaluate if a loan may be issued to the application with a 98 percent accuracy. AI and machine learning can forecast who will need a loan in the future, how much it will be, and when. An artificial intelligence algorithm detects questionable transactions and alerts both the bank and the user.
Robotic Process Automation (RPA) – RPA can aid in the automation of credit analysis, loan approval, risk management, report generation, supervision, and other processes. Borrowers build profiles on the site by registering, so managers can view the relevant information about the application. There is no need for a separate search and collection of information. The data will be centralized on the platform.
Cloud Computing – The cloud allows for the storage of increasing amounts of data without the addition of new computers and devices to the corporate network. Clients and lenders use a same interface, making it easy to follow the status of a loan request and business operations. Specialists have access to customer information based on their position in the organization. The cloud provides access control capabilities to eliminate errors and confusion.
Open Banking – Open banking enables lenders to aggregate borrowers’ data, such as prior loans, current outstanding obligations, and credit score, among other things. This allows lenders to make decisions faster and offer personalized lending solutions depending on customer demands. As a result, numerous financial service providers are collaborating with open banking companies to optimize their lending process.
Blockchain – Blockchain technology’s ability to swiftly move documents with high integrity is likely to boost its prominence among digital loan providers. Participants in the loan process, such as regulators and auditors, may readily verify identities and follow transactions using blockchain technology.
While the obstacles of digital lending transformations are significant, and the road to ultimate success can be difficult, experience has shown that the efforts invested are more than adequately compensated in competitiveness and profitability. Bank in a Digital Box (BiDB) assists banks and lending institutions in successfully embracing modernization. To accelerate business efficiency, satisfy regulatory requirements, and acquire new clients, BiDB employs a Minimum Viable Product (MVP) and add-on methodology.
Success implies considerably quicker credit decisions, with customers receiving cash up to 80% faster; cheaper costs, with 30 to 50% less time spent on decision making; and better-quality risk judgments, which convert into more profitability in the long run.