image source : reuters
Digital lending may sound like a disruptive and unusual thing to hear of but the stirrings have begun in the last three to four years itself, and quite strongly at that.
If we pause over a Bain & Co. study from 2015 we can see that banks could handle only 7 per cent of products digitally end-to-end and that customers submitted only 14 per cent of loan applications through digital channels.
But believe it or not, the challengers, armed with technology, have started coming and are about to fiercely shake how banking gets done – specially, the oft-neglected segment of lending.
This genre of lending is not limited to a cult, not happening in some far-off corners of the world, not hard to administer or recover, and is, growing furiously.
Lending gets a twist
Lending was perceived to be an exercise so deep in physical signatures, complex regulatory compliance, endless documentation, lengthy candidate-assessment, arduous risk-profiling and manual labour that banks could not imagine the word ‘digital’ to prefix it anytime soon.
Notwithstanding what they thought or didn’t imagine, digital lending is here. After being pioneered in a big and path-breaking way in Germany (Fidor was quite an example to begin with), Poland, The Netherlands and Australia; believe it or not, digital lending is pitching its tent in India.
In the last two years itself, we have seen a lot of start-ups, FinTech platforms and entities usher in this unprecedented mode of lending in this market that was, so far, ruled by PSU and private banks.
What old-era organizations run out on is exactly what these newbies bring to the table – clever and quick use of technology without being weighed down by intricate processes. Underwriting can be empowered with cross-channel data support and analytics. Risk-profiling can be done better and swifter with use of both structured and unstructured (social media) data. Payment collection and monitoring, too, can be drastically enabled with use of smart tools and algorithms. But most importantly, customer experience, as a whole, can be made less-cumbersome and more pleasant when it comes to availing a quick and small loan.
This is the SME Playground
That should explain why SME loans are leaning heavily towards the digital players. The digital bandwagon is serving a big and underserved segment of the market. These players are also doing it far more easily and efficiently with complex loan categories like mortgages and SME loans.
Technology not only drastically reduces the need for human resources in the documentation area but also allows for tapping unconventional sources of credibility, identification and interest-classification. It’s also possible to remove geography from the equation now, since most SME users are equipped with mobility, making them able enough to connect to loan personnel anytime, anywhere.
Further, there is a lot of scope of cross-selling, revenue increase and optimization of payments when there is a technology backbone in the entire cycle. Post-demonetization, the country is also waking up to cashless payments and other platforms empowered by new players, Telcos etc. so disbursing loans is also far easier than it ever was. This improves loan penetration and financial inclusion goals at a larger level too.
Digital lending is redefining the industry in small but impactful ways and this is a clear indicator of how much technology can affect a space, when used well, for the right customer, at the right time.Digital lending has arrived, is gonna stay and you may soon see your own bank embracing it.