I write about fintech, data, and everything around it
The Digital Lending Process [Best Practices]
I write about fintech, data, and everything around it
Digital Lending is a big story for financial institutions today where artificial intelligence is making a huge difference in increasing market revenue, customer satisfaction, and faster lending cycle.
The traditional lending process leaves a lot to be desired in terms of borrower experience. Digital technology is transforming the consumer loan industry by providing borrowers with greater simplicity, efficiency, and transparency. The Financial Institutions that can use digital technology to process applications, deliver faster decisions and provide funding quickly on the device(s) of choice will win going forward. The convenience of being able to apply with minimal manual inputs, provide and sign documents electronically, at any time, from any device is enticing to potential customers. To enable this efficiency will require complete digitization of the back-office process, however, not just digitizing paper documents.
The lending process refers to the sequence of activities an FSP (Financial Service Provider) performs to provide credit from acquiring and onboarding a customer, evaluating the customer and disbursing the loan, receiving repayments and following up on past-due loans. Throughout the lending process, the FSP builds customer engagement and loyalty through high-touch interactions that adapt to client needs and preferences.
The FSP’s lending involves the digital channels for acquisition, disbursement, repayment, and engagement and by leveraging digitized data and advanced algorithms for credit decisions, collections, and customer engagement.
Adding, this blog is a continuation of “4 Key Pillars for Financial Services to Boost Digital Lending.”
Customer Acquisition
In the lending business, nobody has figured out a sustainable hook, everybody is saying ‘come and take loans’ which is the easy proposition.
In order to go pro digital, FSP’s should start acquiring customers using a mix of digital marketing tools and digital onboarding channels, enhanced by strategically designed physical touchpoints and referrals. Digital marketing tools include SMS blasts, search engine optimization, online banners, Secure Quick Response (SQR) codes, and social media advertising campaigns, etc.
Approval and Analytics
Lenders are using pretty much the same underwriting process since the 1970s, which would have been a big deal except its standard credit models kind of well, “SUBSTANDARD.” We see too many bad loans being made and too many good borrowers are getting turned down. That means more people defaulting on their loan then they should and the only way lenders can able to keep up is by raising interest rates.
But with the access to digital data lending institutions have changed the game around. Digital lenders use digital data from different business functions and build the Data Bank to make quicker, automated, and more accurate underwriting decisions using both conventional and alternative data sources and advanced algorithms and analytics to quickly and remotely ‘score’ potential clients and make credit decisions.
Disbursement and Repayment
Digital lenders disburse loans and collect repayments remotely through digital channels, such as bank accounts, e-commerce accounts, or mobile wallets integrated with a partner (or) third party integration. These cashless channels improve operational efficiency and reduce fraud by providing a clear audit trail. They also allow for rapid, sometimes instant, disbursement providing customers with access to their funds in a matter of seconds.
Even though third party integration is important for hassle-free lending, still FSPs’ fears of ‘losing their client’. The fear of losing a client can be mitigated by offering a compelling digital lending value proposition that the partner alone cannot replicate.
Collections
FSP’s aspiring to emerge as a digital lender should start leveraging data and algorithms to support their collections process. FSP’s or lender, on the whole, should deploy delinquency scorecards that track customer behavior and propose customized recovery strategies.
Digital lenders should start creating short educational videos that explain key messages on repayment, which field staff can show to customers on their phones or tablets to avoid delinquencies.
Customer Engagement
Each stage of the digital lending process involves customer engagement. Lenders are spending huge money to understand the customer’s behavior and preferences, quickly address their problems or concerns, and create solutions that make sense to the customer on a personal basis.
In order to ensure a long-lasting, high-quality relationship between the FSP and the client, it is important to protect the client through responsible lending practices. For example, by giving simple explanations of the terms and conditions during acquisition, explaining the consequences of not making repayments on time when disbursing the loan, and ensuring accessibility of channels to address customer complaints. Omni-channel customer support would make the entire customer journey more pleasant and will boost brand visibility through word of mouth.
In addition to the best practices of digital lending workflow, we further modeled Digital Maturity Matrix for FSP’s. Click here to know “How digital is your institution?”
Related Posts
Kavya Ravichandran is a skilled content writer with a flair for crafting narratives that educate and engage. Driven by a love for words and an innate curiosity, she explores various topics in the digital space, focusing on application development and modernization, UI/UX design, and emerging technologies like DevOps, AI, and more. She is adept at tailoring her narratives to suit different audiences and platforms, ensuring her work is both relevant and insightful.
Pavithra Anandan is a solution driven IT specialist with over 12 years of experience, including 7 years in manual and automation testing and 5 years as a Business Analyst. She excels in understanding customer business needs and translating them into actionable requirements. Proficient in Agile methodology, she is adept at requirements gathering, epic and user story development, backlog management, and fostering collaboration with cross-functional teams. Her consulting experience spans various industries, including Postal, E-commerce, Automotive, and Airline sectors. Currently, as a Product Owner at Zuci, she focuses on advancing postal logistics by enhancing operational efficiency and driving customer satisfaction through innovative delivery solutions
Minna is a content developer specializing in software testing and Robotic Process Automation (RPA). She enjoys exploring the intricacies of cutting-edge software and knits comprehensible content that resonates with the audience. PS, she is a book lover.
Kavya Ravichandran is a skilled content writer with a flair for crafting narratives that educate and engage. Driven by a love for words and an innate curiosity, she explores various topics in the digital space, focusing on application development and modernization, UI/UX design, and emerging technologies like DevOps, AI, and more. She is adept at tailoring her narratives to suit different audiences and platforms, ensuring her work is both relevant and insightful.
An experienced and adaptable IT leader, Gopalakrishna Raju boasts over 18.5 years of expertise in service delivery management, project management, and database administration. A strong advocate for continuous service improvement and automation, he strives to bring productivity and cost benefits for clients. Certified in Oracle, AWS, and Microsoft Azure, he has received numerous accolades, including the Top Achiever FY23 Spot Award at Zensar and multiple awards at Wipro. When not busy setting up operational models, and delivering successful outcomes, he enjoys playing badminton and cricket.
Simran is a professional with over 18 years of diversified experience in business intelligence and data analytics, strategy planning, key account management and new product development. She has worked in the technology industry, consumer goods industry, retail and market research.
Gayathri Krishnan is a seasoned IT professional with over 15 years of experience, spanning 4 years in manual testing and 9+ years as a business analyst in the General Insurance and Logistics sectors. With more than 2 years as a delivery lead, she has a proven ability to manage end-to-end project lifecycles and transform business requirements into effective solutions. Her expertise covers multiple lines of business within general insurance, including Motor, Health, Personal Accident, Fire, Marine, Engineering, and Rural insurance. Skilled in Agile methodologies, Gayathri excels in requirements gathering, backlog management, client engagement, and leading cross-functional teams. As a Product Owner at Zuci, Gayathri specializes in aligning business and technical requirements to enhance operational efficiency in postal logistics services.
Sona Jayakumar is a Senior Business Analyst with three years of experience in the ESG (Environmental, Social, and Governance) and Healthcare sectors. She specializes in digital transformation and process optimization, focusing on aligning business strategies with innovative solutions. Her expertise in stakeholder management and cross-functional collaboration has consistently delivered impactful results and improved operational efficiency.
Minna is a content developer specializing in software testing and Robotic Process Automation (RPA). She enjoys exploring the intricacies of cutting-edge software and knits comprehensible content that resonates with the audience. PS, she is a book lover.
Minna is a content developer specializing in software testing and Robotic Process Automation (RPA). She enjoys exploring the intricacies of cutting-edge software and knits comprehensible content that resonates with the audience. PS, she is a book lover.
Rama Jayaraman is a Certified Public Accountant (USA), CA (Intermediate) and Commerce graduate. She is certified in Professional Scrum Master I and has working knowledge of multiple tools like Tableau, Power BI, Smartsheet, Azure Devops and multiple other Microsoft tools. She is a Seasoned Professional with 8+ years of experience with a proven track record in Project Management and Risk Management through a solution-oriented approach. She has managed and lead key projects in the areas of Automation, Analytics, Auditing, Financial Reporting and Internal Control. She has worked for companies like KPMG, Maersk and Standard Chartered Bank. Currently supporting The Officer of Inspector General (The Global Fund) as part of the Zuci family. She is a trained singer who has participated and won competitions. During her spare time, she has also volunteered as a coach and conducted swimming classes for the underprivileged and visually challenged.
Ameena Siddiqa is a seasoned marketer with hands-on experience in curating captivating content on the latest cloud, devops and enterprise technology trends. With a keen eye for emerging trends and a passion for storytelling, she has a knack for transforming complex concepts into engaging narratives that resonate with audiences across industries.
A web-analytics nerd, speaker - here delving into (Big)-data.
A web-analytics nerd, speaker - here delving into (Big)-data.
Minna is a content developer specializing in software testing and Robotic Process Automation (RPA). She enjoys exploring the intricacies of cutting-edge software and knits comprehensible content that resonates with the audience. PS, she is a book lover.
Rajalakshmi Sivaramakrishnan is a Lead Business Analyst with 17 years of experience in various fields, including Business Analysis, Identity Access Management, Requirement Engineering, and Business Intelligence. She excels in automating processes, aligning business and technology, and has domain expertise in retail banking and capital markets.
