5 Reasons Why Lenders Need to Embrace Digitalization
Banking | 5 min READ
    
Digitalization in lending has become crucial in the post-pandemic era. According to a BCG report, digital lending is the next wave in the industry and eyes a $1 Trillion opportunity. Before we dig deeper, let's define 'digital lending' for a better understanding. Hence, digital lending is consumers acquiring loan products digitally. From application processing via digital channels to disbursal and management of a particular account post disbursal, the account falls under the purview of digital lending.
Vikram Chandna
Vikram Chandna

Sr. VP & Global Head

BFSI

Birlasoft

 
The inception of digital lending started with banks and independent mortgage organizations, where the industry focused on digitizing the customer-focused processes aiding in customer convenience. The pandemic pushed the world for remote working, and digital operations with functionalities like remote online notarization, virtual onboarding, AI-dependent documentation, etc., were popularized across the BFSI industry. Digital disruption is helping to reimagine the digital lending and leasing business, creating excellent customer experiences.
How are AI and Automation transforming Lending Digitally?
With the changing customer expectations and the threat of irrelevance looming over traditional lending practices, a swift movement towards scalable systems is noticed, exhibiting high performance and agility with low code simplified integration. Digital technologies are imperative to catapult the growth in this sector. Implementing AI, NLP, and Machine Learning for exhaustive and accurate data management add value to the overall customer experience and business transformation. Many high-impact digital-led use cases are doing the rounds and helping shape the lending business's current architecture.
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For instance, combining AI, OCR, NLP, digital lending automation, and a layer of big data analytics helps underwriters access more data, leading to better credit decisions. In addition, solutions are of massive scale, and imagine the holistic analysis a credit bank or lending institution could do with their hands on multiple data points!
Embracing Digitalization with the newfound technologies would augment processes proving to be a game changer for businesses. So, why not adapt?
5 Whys to Adopt Digitalization across Lending Processes
An understanding of the positive impact of Digitalization in the lending processes and the valuable use cases bring us to the "Five Whys We think Every Lender should embrace digitalization," and here they are:
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1. Faster Loan Closures for Accelerated Growth
Using AI, OCR, NLP, and automation in digital lending, 90% faster loan closures are observed across the industry. This automated digital lending solution helps in mitigating risk with better credit decisions. In addition, automated loan origination optimizes onboarding processes by efficiently processing customer data and streamlining activities across cross-functional teams. Therefore, minimizing the manual efforts on data handling and saving the banks from juggling the volume of data.
No credit records? No worries. Digital Lending enables application processing while considering your guarantor or co-applicant details. You can raise loans quickly without a credit history. That's how lending is revolutionized across the BFSI space using digital capabilities.
2. Take Down First-party Frauds
With the high volume of data and loan applications flowing daily, a higher dependency on manual interventions and sub-optimal data management might expose banks to operational risks and external threats. While well-documented policies and regulatory guidelines exist, the steady rise in fraudulent activities requires tight risk monitoring. Hence, traditional ways of operations are not sustainable. Automated solutions and reducing overdependency on manual checks are the first step to staying ahead of first-party frauds.
3. Hyper-collaboration Between Teams
The gains from digital interventions are much more than investing in manual headcount. It enables non-linear scaling by minimizing frictions, reducing costs, and surging revenues. Furthermore, automated workflows and AI-enabled channels induce a modernized way of consistently processing information and its dissemination to cross-functional teams. This augments the decision-making process and holistic data management by giving the right teams access to the correct information at the right time, ironing out communication challenges, and promoting a collaborative working environment.
4. Amp up your Operations with Faster Decision Making and Analytics
Rising competition and customer lending alternatives put underwriters under much pressure to ensure efficient underwriting. Profitable and efficient underwriting operations demand high accuracy, credit decisions, and operational agility. Both of which are impossible to achieve without advanced technology. The concept of augmented underwriting helps banks and lending institutions in multiple ways. Banks can use machine learning models to improve their speed and accuracy of data processing. These machine learning models upgrade themselves as they analyze customer data and creditworthiness. With the help of automation in these decision processes, underwriters can free themselves from the extra pressure of the sub-processes like evaluation of risk scores, application scanning, and review, to name a few. Instead, the underwriters can focus on better decision-making with 100X more data points and tweak the rules and models to ensure a balanced human and machine intervention, thereby stepping up the underwriting operations. Powerful analytics enables a smoother outcome with faster and more accurate decisions.
5. Improved Customer Experience with Significant Retention
Customer delight and retention are equally crucial for a lender's growth. After all, it's the customers this industry is directly serving. CX will always be at the core of any new changes or transformation program. Customers are a vital pillar that cannot be ruled out while implementing any new process or technology. Digitalization not just sets things up internally but also ensures customers are engaged and well-informed of the additions and changes for a lasting relationship. Full transparency into the processes is the key, and the new digital channels ensure that it gets done in the best possible manner. Thus, a customer-centric digital-first approach is what businesses need to look at for an impactful customer experience.
Final Words
Therefore, a thoughtfully planned digitization strategy drives alignment between internal and external stakeholders, making processes seamless, from customer onboarding and loan processing to disbursal and underwriting operations. A staggered approach to the modernization of the workflows reflects significant financial gains, mature processes, team collaboration, and business scaling. Considering the highly volatile era we are in; this is the most appropriate time to go digital and embark on the journey of digital lending.
 
 
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