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Demonetization has revolutionized and is continuing to revolutionize India’s financial landscape in several ways. And the effects are evident in the loan sector as well. Digital lending platforms are being introduced by many forward-thinking NBFCs and banks for availing loans, especially personal loans. This means, when a borrower applies for a personal loan, the digital lending platform assesses his or her financial and personal information and credit-worthiness online. There is no need to submit application forms, bank statements, or other documents manually, anymore.

The online lending platform decides whether the loan should be disbursed or not, making the entire process hassle-free, quick and streamlined. There is no human intervention, it’s paperless, and the loan disbursement happens more efficiently than traditional lending solutions. The loan amount gets credited in the borrower’s account in minutes, and one can apply for the loan at any time of the day. Plus, you can track your transactions and EMIs easily on digital lending apps.

Innovation in Digital Lending

  1. End-to-end digital workflow and processes – Originally, digital lending was about making manual processes automated and replacing paper with online processes. But that didn’t make the online experience much different from the offline one, for lenders. What happened was that a physical form just got replaced by a PDF. But recently, lenders are embracing digital tools, to make processes streamlined and reduce documentation. They are aim to make the customer experience more convenient and friction-less, by tweaking their internal workflow and integrating new data sources.

  2. Interactive Delivery – Thanks to digitization, borrowers looking for personal advice can access self-service digital channels. In other words, video chats and interactive co-browsing tools offer borrowers the guidance, answers and support they need, without any face-to-face interaction. These digital channels have a “human touch” as well, so that customers can trust and rely on them.

  3. Personalization – Most borrowers these days look for personalized financial advice to make informed decisions and enhance their financial health. Hence, lenders have a huge opportunity when it comes to explaining relevant financial options to borrowers, through artificial intelligence tools. This will be personalized yet affordable, and this is why financial wellness and financial management tools are gaining prominence.

  4. Value added services – Banks and NBFCs are positioning themselves as reliable advisors to borrowers these days, offering customized support that matches the borrower’s loan type, needs and tastes. This is not only expanding their scope, but also helping lenders forge better relationships with borrowers. For instance, a lender can help a borrower with a car loan find the best car as per his demand. Or it can help someone with a home loan find a moving company.


Advantages of Digital Lending

 

  1. Minimal documentation – Digital lending requires zero or minimal documents, making the whole process online and fast. You don’t need to submit ID proofs, bank statements, or other papers manually.

  1. Fixed monthly installments – Before the loan is disbursed, a fixed EMI is calculated so that you know what you have to pay every month. You can pay off this EMI easily, by setting up auto-debit from your account.

  1. No hidden fees – A digital lending platform has no hidden fees and you won’t be charged anything extra for availing a personal loan through it.

  1. Easy online loan application process – Applying for a loan digitally is very simple. You have to enter the loan amount and preferred tenure first, and then add contact number and email IDs while registration. Providing social authorization, address, PAN card details, KYC documents, bank statements and your job details is also very easy and a step by step process.

  1. No prepayment penalty – No penalty charge will be levied if you prepay a part of your personal loan.

  2. Social authorization/a secondary identifier – Social authorizations are also evaluated digitally, and you don’t need to provide documents. Instead, connect your social media profiles like Google+, Facebook or LinkedIn and get lower interest rates.

  1. Transparent process – Digital lending is a straightforward and transparent process, where each step is easy to understand. You will get your loan quickly if everything is in place.


Challenges

  1. IT support – Digital lending platforms are making it very easy for borrowers to get a personal loan without speaking with a loan officer first. But in their drive to acquire more customers as well as funds to meet loan demands, they end up ignoring technology challenges. For instance, lending rules are managed by Business logic that is coded in the software, but the rules change very often. Hence, it needs proper IT support to keep making newer rules or modifying them.

  1. Lead Qualification – Currently, most banks and NBFCs employ loan officers and sales personnel to follow up with leads and examine their qualifications and loan eligibility. An automated pre-qualification system or bot could have made the qualification process easier instead, leaving sales personnel to focus on closing the loan.

  1. External Stakeholders - Third party sales agents are often used by lenders for loan processing. Hence, the borrower might take a loan to buy an asset that a broker represents. Since most lenders don’t offer a portal where stakeholders can view loan details, due dates, collateral value and commissions due, dealing with them becomes an additional problem.

  1. Acquisition – While evaluating the risk profile of a customer, most lenders use third party underwriting and credit reports. This method is highly conventional and doesn’t allow lenders to assess risks for different loan amounts and interest rates. So, modern lenders are gathering customer details from social media platforms to build newer analytics and risk models.

  1. Document/ Contract Management – For most lenders, contracts are paper based, supporting documents are collected via mail, and loan origination systems are not integrated with document management systems. This makes loan processing slow and inefficient. By integrating a digital contract management application with a loan closing system, banks can process loans faster. Also, if the contracts are digital, they don’t need to be secured physically.

To conclude, digital lending is the future for banks and NBFCs, owing to the many benefits it presents to both lenders and borrowers in terms of convenience, speed and transparency. But it also comes with its fair share of technological challenges, which must be addressed soon to make the process more worthwhile for lenders.

Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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