The direct answer to the question: “what is digital lending?” is as follows. Digital lending is a technology that allows financial institutions to boost productivity and loan profits while providing speedier service at the point-of-sale (POS). It enables potential borrowers to apply for loan products—such as BNPL—from any internet-capable device from any worldwide location.
Digital lending is neither a new nor unfamiliar practice, and financial institutions understand the basic concept quite well. However, as technologies advance and consumer demands evolve, that concept becomes more complex. Customers expect banks to process applications and render decisions at a furious pace. Run-of-the-mill paperless services are now commonplace, and financial institutions must provide customers with digital lending practices that reach beyond the ordinary to keep pace.
Five Benefits of Digital Lending
There are numerous potential benefits of digitizing lending processes. Five of those include:
1. Streamlining the Application Process
In various respects, consolidating and digitizing customer information lending improves the borrower experience.
- Improved process transparency and shorter decision turnarounds reduce customer frustration.
- It minimizes instances of incomplete files that delay application review.
- It encourages better communication with the customer regarding what information they need to provide up-front.
An online loan application creates a central database that holds all application data. When a bank or credit union uses a digital banking platform, the entire financial package updates automatically when the customer provides the information necessary to complete the application.
2. Digitizing the Lending Information
Digitizing the flow of and access to information provides significant benefits to the entire credit team. It improves transparency and reduces bottlenecks as follows:
- Information: Many digital lending systems allow loan processors to collect third-party data through a single interface, such as credit bureau reports and external bank and financial information. This process lowers errors and eliminates unnecessary manual tasks, allowing the decision-making process to happen faster.
- Access: Lenders can access all borrower information from one centralized location. Digital lending software that uses customizable workflows then documents decision processes for more successful audit tracking.
3. Using Lending Information for Analysis
Financial institutions can also digitize the analytics and intelligence areas of the lending process.
Lenders and analysts often resort to using varying estimates and assessments. These discrepancies often result in faulty calculations, leading to incorrect credit decisions and inaccurate reporting.
However, a digital lending system integrated into a digital banking platform can analyze, approve, and price each loan product quickly and accurately. Simultaneously, once the system collects the lending data, banks and credit unions will be better able to use insight to evaluate portfolio risk and make strategic decisions.
4. Offering Mobile Lending Features and Document e-Signing
Specific customers, particularly Millennials, favor mobile features because they are accustomed to performing most daily tasks from their phones - and accessing lending materials is no exception.
They do not want the hassle of visiting physical branch locations to review and sign disclosures and other relevant documentation when electronic loan procedures are available. That inconvenience is often significant enough for some customers to warrant taking their business to a digital loan provider.
5. Providing Loan Options for Poor or No-Credit Customers
Financial institutions rely heavily on credit scores in traditional lending practices. Credit scores offer lenders an in-depth look at a would-be customer's past borrowing behaviors.
However, many customers are looking for first-time loans and do not have an established credit history. Traditional lenders sometimes refuse to lend to borrowers who lack a history of timely loan repayments.
Digital lenders, on the other hand, often forego these hard credit checks for short-term loans such as BNPL. They rely on either alternative credit score data or little to no financial information, making loans more accessible to first-time borrowers.
This greater flexibility and approval leniency makes digital lenders a preferred option for financially-strapped and even non-banked customers. Removing credit history roadblocks from the loan approval process allows financial institutions to expand their customer base and supply more loans.
What to Look For in Digital Lending Platforms
Digital lending platforms differ by provider, and each includes its own set of particular and customer-specific features.
However, any effective digital lending platform should include the following:
- A customer-friendly interface that facilitates front-to-back application completion and submission
- Data verification software that confirms borrower information via secure financial databases
- Self-serve pre-approval technology that renders prompt application decisions
- Software that collects, manages, and transfers loan information across all appropriate departments
- A system that provides ongoing monitoring for potential red flags that could impede application approval
Skeps Can Help Answer the Question: What is Digital Lending?
By now you should have the answer to the question, “what is digital lending?” Digital lending benefits customers in several ways, such as quickening the approval process and enhancing transparency. Digitalization can also improve a financial institution's lending efficiency, resulting in higher net revenue and increased resources for further upgrading its electronic services.