The Future of Digital Lending Innovation

In Featured, Small Business Loan Underwriting by Yulia GnatyukLeave a Comment

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The Future of Digital Lending Innovation

Digital lending is revolutionizing business in the financial sector. Going digital has helped many banks and other lenders to streamline processes and improve the quality of their services. This, in turn, has led to reduced costs and improved efficiency.  New innovations in digital lending are constantly being developed, and the future for the sector looks bright. Here are some trends to watch:

Predictive Analytics and AI

The Future of Digital Lending Innovation

One problem faced by lenders as they seek to expand their markets is the pressure of risk management. It comes from more diverse customers and a higher volume of loan applications. This is especially true in small business lending.  Small business borrowers don’t always fit standard approval criteria. This requires a much greater amount of data to be assessed by underwriters to reach approval decisions.

The development of artificial intelligence (AI), particularly in the area of cognitive computing, has provided solutions and expanded opportunities for lenders in risk analysis and management. Cognitive computing, a form of machine learning, can augment human decision-making with its ability to analyze large amounts of data. It can recognize patterns in both financial and non-financial data that would almost certainly escape detection by human underwriters due to the sheer volume of information.

AI is most useful when data that need to be parsed include many points that are ambiguous or whose context is not obvious. As they have expanded their market reach, lenders have found that the usual criteria that result in a credit score – frequency and volume of borrowing, repayment history, and income – often do not present a complete enough picture of a prospective borrower. This is especially true in the case of small businesses.

AI is capable of reading and connecting dozens, sometimes hundreds, of data points and making an accurate risk assessment. And because the data from each new loan and its repayment adds to the database, AI can hone its analyses as time goes on, learning from past performance data to make better predictions of risk.

Greater Accessibility and Mobility

The explosive growth of mobile technology has completely changed the way business is done in almost every sector.  Banking and financial services are no exception. Less than ten years ago, the idea that nearly every person on the planet could have instant connectivity in the palm of his hand might have seemed fantastic. Now, not having instant access to the internet, work and many of the services we rely on for our daily business and personal lives is almost unthinkable.  

That is not mere hyperbole, either; according to data gathered by research and consultancy firm Gartner Inc., smartphone sales worldwide reached 384 million units in the first quarter of 2018, an annual growth rate of about 1.3 percent. In developing countries, the growth rate is eight or nine times faster. In India, for example, a country with a rapidly expanding economy driven primarily by MSME activity, the number of smartphone users is expected to grow from about 340 million in 2017 to nearly 470 million by 2021.

The financial industry worldwide has responded by creating new mobile channels for banking and other services, including lending. Mobile apps that let customers apply and submit documents online are seen mainly as a customer service enhancement. Such applications definitely offer some efficiency advantages to lenders as well, mainly in the loan origination area.

Information entered by a customer through a mobile app can go straight into the bank or lender’s database, saving the time spent on keying and re-keying information. Missing or incomplete documents can quickly be corrected using a mobile app, saving loan originators’ and customers’ time. This helps the whole loan process to move faster.

Cloud-Based Data Integration

The Future of Digital Lending Innovation

Development in mobile apps is also being partly driven by a much broader push toward cloud-based data management. Adopting a cloud strategy has a number of key benefits for businesses in the financial sector:

  • Ease of implementation and low cost.  Cloud-based solutions require virtually no new infrastructure. Compared to other options, capital and operating expenses for implementing a cloud strategy are far lower. Because the cloud doesn’t require new hardware or extensive programming, implementation can be completed in a matter of days or weeks. Likewise, a cloud-based solution is easily scalable, limited only by the capacity of the cloud provider. For most banks and lenders, scalability on the cloud is virtually infinite.
  • Unlimited accessibility.  The lender’s system can be accessed from anywhere a device can connect to the internet. This provides added convenience to customers and provides the lender with flexibility in working remotely or in multiple locations. It also enhances oversight and monitoring of the progress of loan applications and other transactions.
  • Flexible integration.  Through cloud solutions, lenders can integrate with other data sources. This eliminating the need for manual verification of credit and financial information, employment or business registration information, and identity and vital records. The enormous amount of time saved can be applied to processing even more loan applications and approvals. Again, this allows the bank or lender to expand its business without investing in any physical steps to do so.

Managing Security Risks

The Future of Digital Lending Innovation

Unfortunately, but not at all unexpectedly, the rise in automation, mobile applications and cloud strategies in the financial industry has also increased the risks of cyber attacks and other digital security breaches. Banks and other financial institutions have always been near the forefront of security developments but must increase their efforts to stay at least one step ahead of potential threats.

Some developments that are already being implemented and are likely to be seen in more places in the near future.  These includes outsourcing of cybersecurity management.  It provides strict, round-the-clock monitoring and threat response that would otherwise be expensive and difficult to manage. The application of blockchain, the technology underlying bitcoin and other cryptocurrencies, is also being tested in some areas such as KYC (know your customer), which helps to eliminate identity theft and related forms of fraud.

Cutting-Edge Digital Lending Solution

The Future of Digital Lending Innovation

As a leading provider of lending automation software, MonJa is constantly developing innovations to keep pace with the very latest digital lending trends. We offer a lending software solution that will meet your needs, whether you are a traditional financial institution, online lender or a nonprofit lender. To learn more, download the e-book today.

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Our platform supports consumer term, C&I, CRE, equipment, auto and other small business loans.

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