image source : reuters
When SAP, together with Bain & Company, tried to figure out the banking fraternity’s inclination for technology, it stared at a new figure - 7 percent – the average when it comes to lending products handled digitally on an end-to-end note.
This exhibited low maturity of traditional banks with digital lending capabilities but it also hinted of the big potential lying unharnessed.
One that smart disruptors are already tapping furiously and cleverly.
Lending at the tap of a Finger
It’s hard to miss that word today – digital lending - when one goes about a routine day. This new, surreal-sounding and unfamiliar form of lending, however, is not strange when you ask a young entrepreneur or a SME in some urban corner in India.
There is a spate of digital loans doing the rounds, picking up on the conspicuous void that banks have left thanks to post-recession struggles, heightened regulation, rising costs, and comfort with big-value loans and known customers that they were dealing with.
That’s where future-forward FinTech players are making and creating a beeline.
These players are offering a new flavor of loans in an altogether new way – digital, online lending.And what’s making this possible and popular?
- Ability to use technology early on: Banks may still limp under the burden of legacy IT, but new players have the luxury of investing in fresh-from-the-oven stuff and apply technology for a business advantage. Whether it is pronounced use of social media tools, reliance on analytics and automated engagement – online lenders are many leagues ahead than their banking counterparts.
- Processes entailing clearance of loans, document management or assessment, and other interactions get accelerated when one is dealing with digital loans. The concept of straight-through processing is not only bringing in cost-reduction but also an amplified customer-delight with the ease and speed that both parties gain through technology.
- From SMEs, budding start-ups, lower-income groups to women; there is a vast underserved market segment that is being catered to through this breed of lending. The headway made by Micro-finance is transpiring into a new industry with the advent of this form of lending.
- Technology-powered lending not only chops away bureaucracy but it removes barriers and walls between the lender and loan-taker in an unprecedented way. The power to gather real, useful assessments by using social media and other pattern-catching from analytics is enough alone to free users from endless applications and heavy documentation, while also empowering lenders with actionable insight instead of foggy piles of KYC data.
- Digital lending is bringing in a focus on behavior that is quite radical when it comes to risk-profiling and assessments but that may also prove to be a compelling alternative to unwieldy credit-scoring and document processing.
- For FinTech players mounting on this space, there are advantages like lower operational costs, better agility and cross-selling revenues as well as lifecycle value of new, untouched customers.
- Small value loans not only bring in an environment conducive for entrepreneurship and innovation, but they also dovetail well with government’s thrust on financial inclusion. What’s more - they make lending, monitoring, collecting, paying – everything so much easier.
- FinTech players can also offer a better range of products and modularity since they have a better step ahead in this new game. This allows more power to users for comparison, choice and flexibility. It’s a species of finance that is in sync with customers who are thinking mobile-first in every mode of life already.
- Sharp use of automation and analytics in risk assessment, underwriting, documentation is redefining speed and convenience in this space. This also makes the idea of seamlessness possible when a user wants every channel and interaction to be quick, easy and technologically-savvy.