Alternative Business Lenders or Lending Fintechs have been steadily taking away the share of SME loans from Banks to the effect of close to 80% of the SME loans funded by Fintechs. Low cost to capital, higher risk appetite, better service in terms of Processing time and Documentation involved along with the fact that the SMEs are increasingly tech savvy millennials give the Fintechs significant leverage to use technology to bring disruption to the way loans are issued and serviced. 48% of the SMEs don’t find the need to talk to a loan officer for getting a loan.
Many Fintechs, in their efforts to focus on acquiring customers and sources of funds to meet newer loan demands tend to push the technology challenges to the back burner and end up compromising by not making the necessary changes or adopting short term work arounds.
Here are some of the technology challenges faced by Fintechs:
1) Managing Business Rules
Most Fintechs manage rules through Business logic coded in the software. Changes in Business rules due to regulation changes requires IT effort and some of these changes happen so frequently that a significant bandwidth of IT support goes into constantly tweaking these rules and creating newer rules.
A Rules Engine based Loan Origination System helps even Business users to create, track and modify the rules. This reduces the IT team’s engineering effort as well as User Testing effort since the rule engine based rules are created by the Business users themselves.
2) Lead Qualification
A majority of the Fintechs use Sales personnel or Loan Officers to engage with leads and help them check their loan eligibility limits and qualification status. A bot and an automated Prequalification system can help automate the qualification process and let the sales bandwidth focus on helping customers with the loan closing.
3) Tracking Sales productivity and pull through ratios from the Loan Origination System
Dashboards and Reports are key indicators to management to help them track the efficiency of Sales Executives. Reports on pull through ratios help management understand the slack in operations and take necessary steps to make it more efficient.
4) Dealing with other stakeholders apart from the borrower
Many Fintechs use third party sales agents to process a loan. The borrower may be taking a loan to purchase an asset that may be represented by a broker. Most Fintechs don’t provide a portal or medium for the various stakeholders to view details of the loan, the collateral value, the commissions due and the due dates, certificates for claiming tax rebates etc.
5) Acquiring customers
Most Fintechs rely on Credit Reports and third party underwriting systems to evaluate the risk profile of the customer. The level playing field gives little room for aggressive play in terms of loan amount or interest rate eligibility. The top fintechs are starting to use unconventional sources like Social Media to get more details about the customer and building analytics around the data to build newer risk models to support the conventional methods.
6) Document Management and Contract Management
Many Fintechs still collect loan supporting documents from the customers via email or have Document Management Systems that are not integrated with their Loan origination systems. This makes it difficult for documents to be linked to a customer and track the documents submitted again a loan application.
Contracts executed by a majority of the Fintechs are still paper based. Fintechs have to secure the physical contracts for the duration of the loan that may run into many years. A Loan Closing system integrated with a Digital contract management application helps faster execution of contracts and a digital copy of contracts reduces the burden on the physical infrastructure required to secure the contracts.
Depending on the maturity and priorities defined, different Fintechs may choose different strategies to address these challenges, but it is evident that Banks are also beginning to innovate and make investments in technology to gain lost ground and will soon catch up. If the Fintechs don’t keep up with the trend, they are likely to be left behind.
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