Digital Lending Software: How Technology is Changing the Lending Landscape

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Digital Lending Software

• How Technology is Changing the Lending Landscape

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Digital Lending Software and Us.
Today the impact of digitalization is sweeping
across almost all aspects of our daily life. It
has become a tool for transformation in the way
we transact, interact and conduct our business.
One such important aspect of our life where
digitalization and AI has brought about radical
changes is lending/borrowing by FinTechs and
banks. According to the EY Global FinTech
Adoption Index 2019, 93 of FinTech SMEs prefer a
technological solution over manual or
traditional method wherever possible. In order to
focus on developing innovative products and
catering to low income, semi-urban and rural
customers in unorganized sectors, FinTech lenders
are adopting business and operational models
fuelled by cutting-edge technologies such as big
data, open Application Programming Interface
(API) and Artificial Intelligence (AI) that
facilitate the design, launch, implementation
and execution of tailored products and services
in a seamless manner. With the advent of digital
lending software, we are looking at paperless,
affordable and tailored solution to
time-consuming, cumbersome and lengthy loan
approval process, which also offers close
monitoring of borrowers along with cost saving
benefit and customer satisfaction. Digital
lending models are today addressing the huge
unmet demand for credit. Indias digital lending
software market is expected to see a CAGR of 36
by 2023 (Industry FinTech Report).
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The key digital lending models in India
So, what exactly is Digital Lending?
Digital Lending is simply automating the process
of lending- right from the point of application
for a loan to its disbursement through web
platforms or various mobile applications by
making use of technology. Lenders use data held
in digital form to make credit decisions and
build customer engagement. Digital credit would
cover all kinds of credit facilities offered by
online lending platforms that are not operated by
commercial banks.

• P2P lending Digital marketplaces connect
  borrowers (both individuals and organisations)
  with lenders, allowing quick access to low-cost
  loans.
• Invoice financing Short-term working capital
  credit to MSMEs, based on their unpaid customer
  invoices, to meet MSMEs short-term liquidity
  requirements.
• Crowdfunding Digital platforms that enable
  investees to raise external credit from a large
  group of investors, by allowing investees to
  exhibit their business cases, funding requirement
  and market potential.

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• Pay later loans Lenders disburse instant, small
  sized loans with the buy now and pay later
  model for meeting customers purchases.
• Mobile lending Lenders offer mobile loans to
  customers by assessing their creditworthiness by
  leveraging mobile phone data such as call
  patterns and mobile e-money usage.
• Digital mortgage Lenders facilitate mortgage
  purchases through end-to-end digitisation of the
  traditional mortgage loan process, from the
  application stage to disbursement, through
  digital channels in order to reduce the high
  turnaround times prevalent in the existing
  traditional model.
• PoS lending A partnership model with Financial
  Service lenders where these players finance
  online shoppers purchases by utilising both
  conventional data like bank statements and
  unconventional data like online transaction
  history.
• Supply chain financing Marketplaces tie up with
  direct lending NBFCs to target merchants selling
  their goods and services online, by leveraging
  the huge amount of merchant data available on
  these online channels.

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The Digital Lending Process

• It can be broadly broken down into five steps
• Customer Acquisition  In order to acquire
  customers, Financial Institutions use various
  digital marketing tools such as social media
  campaign, SMS blasts, search engine optimization,
  Secure Quick Response (SQR) codes etc. Lenders
  rely on aggregators such as Amazon, Flipkart etc
  and authorised Direct Selling Agents (DSA) like
  BankBazaar among others to source borrowers.
• Approval Analytics  With access to digital data,
  now the lenders can build their own data bank
  which in turn facilitates their underwriting
  decisions. As these underwriting decisions are
  automated, they are more accurate and way quicker
  than the ones derived solely from conventional
  methods. Advanced algorithms and Analytics are
  used to make quick and remote credit decisions.
• Disbursement and Repayment  Disbursement of loan
  and collection of repayments is carried out
  remotely and digitally by the lenders by making
  use of digital channels such as bank accounts,
  e-commerce accounts or mobile wallets that are
  integrated with Third Party Integration. Such
  channels offer increased operational efficiency
  and also reduce occurrences of fraud.
• Collections  Algorithms and digital data are
  leveraged to support the collection process.
  Delinquency scorecards are employed to track
  customer behaviour and propose customised
  recovery strategies. Delinquent customers thus
  identified are blacklisted and lose access to
  future credits.

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Benefits of using Digital Lending Platform 

• One of the most distinct advantages of digital
  lending is speedier approval of credit.
  With digital lending software, lenders can now
  simplify and automate the decision making
  process. A single, integrated digital lending
  platform not just ensures that lenders can
  quickly process the background verification but
  also that customers can get quick response after
  applying.
• Features of digital lending platforms are user
  friendly and require minimal manual intervention.
  They streamline the entire lending process,
  making it suitable for first time borrowers who
  are mostly millennials and comfortable with
  automation. Applications are processed without
  any risk of human error or bias, making the user
  experience efficient and enjoyable.
• To understand the market trends, customer
  behaviour is tracked with the help of analytics.
  These analytics also provide vital information
  regarding scope of improvements in the process.
  With the help of such data lenders can acquire a
  fair understanding of the inputs that drive
  market strategy.
• Digital lending platforms have been known to cut
  overhead costs by approximately 30-50. There has
  been a paradigm shift in the lending landscape
  and the benefits of digital processing are far
  too great to be ignored. By utilising digital
  footprint as substitution for physical document
  verification, it offers significant lower
  operational costs.

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