5 Benefits Of Using Digital Lending Platforms

Digital lending is reshaping SME growth

Access to credit aid businesses in strategic decisions involving capital budgeting requirements. Business loans pay for capital requirements for inventory stocking, vendor management, and regular expenses. Lending helps these businesses from diluting their equity stake. 

The US-SBA Lending report points to data that substantiates growth in small-business lending. However, traditional banks with mammoth resources at their disposal hold 58% of the share value of outstanding small business loans. Small depositary lenders and new players like fintech companies rest of it. Soon, fintech companies will reposition themselves as the biggest lender of SBA lending. The lending platform technology they use to process digital loans is driven by AI and offers numerous benefits. 

 

Let us check five benefits of using digital lending platforms here:

1. Customer onboarding

New-age borrowers insist on easy-to-use interfaces for buying anything. They are aware of the possibilities of technology as they can use similar tools for simple tasks like ordering a cab or groceries. They will appreciate a system where they can fill out the form through a multi-channel platform accessible at any time of the day. A Long-drawn out loan origination process where multiple documents are verified manually for days is not what they appreciate. 

Digital lending platforms offer customers seamless onboarding through omnichannel platforms. The identification of customers is verified through optical character recognition (OCR) and matched with documents submitted by them. 

Address details are auto-captured without any need from the customer’s end to fill details manually in multiple areas. With reduced time and errors, automated tools offer a good experience for customers and teams who collect data. 

2. Fraud-detection

Automation helps in tracking fraudulent transactions and reports suspicious activity to lending institutions. Traditionally, bank employees used to fill out compliance forms for such activities. However, machine learning and natural language programming extract information and fill out risk-compliance reports in real-time. 

Implementing digital tools has proved helpful in saving time and cost compared to traditional lending methods. When lenders avoid risks related to fraudulent activities they are ensuring the quality of their loan portfolio and averting possible business losses. 

3. Efficiency model

Machine learning and robotics seamlessly integrate into existing interfaces. With automation, a tedious process of loan origination is closed in record time. Critical functions like loan application, document processing, credit analysis, underwriting, disbursal, and monitoring covenants can be streamlined with automated tools. With digitization, loans are approved at a faster rate and result in improvement in customer service. 

4. Technology obsolescence

Up till a few years ago, the drawback of technology was that it was obsolete before the cost of installation, was recovered through operational efficiency. With AI and machine learning, the loan origination software requires low maintenance and will be updated for changes. 

A complete overhaul of the new software is not warranted for a long period. 

5. Scalability

Robots don’t need rest and can work endlessly. Automations also resolve the tasks in less time than a manual process. As a result, a lot of loan applications can be processed in less time with unmatched adroitness and quality. 

After understanding how digital lending platforms will benefit loan origination, banks and lenders have to select the right fit to bolster their lending business. Here are certain key aspects that can be checked if one is rolling out a LOS:
 

• Size and business needs

Many vendors are offering various versions of LOS that can be either unboxed or customized. Before implementing technology an entity has to define its short and long-term business requirements. And match it with the capabilities of the prospective vendor's offer.
 

• Types of LOS structure

After a feasibility check, if the business feels it can automate a few critical processes like client onboarding and underwriting, then go with segmented automation. However, its recommended to consider the benefits of an all-in-one modular structure. 

Some LOS software is cloud-based and uses open-source code. Some of them are enterprise versions that are customized and built specifically for an organization. A system that is comprehensive and integrates all functions is desirable. 

 

• Automation abilities

Check the software for its automation capabilities like

1. Is the system able to validate the data sourced from the customer during onboarding?
2. Can the tools verify the financial information for its thoroughness and eliminate the possibility of fraud?
3. Can the system check proprietary credit scoring and recommend measures to look beyond numbers in cases with no credit history?
4. Is the system capable to adjust to local laws and has country-specific editions of the platform?
5. Does the algorithm for credit assessment consider all possibilities for financial modeling and projections?
6. Is the system able to cross-verify the information and recommend credit assessment decisions?
7. Can the system take digital signatures on loan agreements and disburse the cash after verifying it? 
8. Is the system resilient against cyber attacks?

The list is not exhaustive but covers some of the key points when paying for new technology. 
 

• Review entity’s loan origination process

The logic and business model of lenders differ as per size, the geo-political aspects of the operations, the type of products offered, niche markets with monopoly, sensitivity parameters that can change shortly, and local regulatory framework. It is very important to cover all the aspects and tweak the LOS if required to suit business needs.
 

• Transition time

Few factors will affect transition time and will differ between lenders choosing the same product (here LOS). Some factors that will increase or decrease the time taken to for smooth transitions are:

1. The complexity of the existing system
2. Option to keep both old and new systems working at the same time
    

Conclusion:

Lenders who are yet to challenge themselves to upgrade to a digital lending platform have to decide soon. A client is likely to choose his lender based on competitive interest, ease-of applying for a loan, and speedy process. Automation tools may pose initial challenges but once implemented will prove to be an asset that increases profitability. With automation, banks can also penetrate markets that were not tapped because of a lack of resources.