Across the world, every business sector has found its route to accelerated transformation due to the outbreak of COVID-19 and rapid technological adoption, and the financial sector is not an exception. Technological advances combined with customer expectations are altering the way lenders operate. Furthermore, the increasing internet penetration and adoption of smartphone devices are pulling traditional and new-age borrowers towards digital lending solutions. According to a survey – around 40 per cent of borrowers led by millennials are willing to move to online mode in securing loans rather than offline channels. The accelerated push towards the adoption of digital tools makes technology the key enabler of the digital lending market. Contrary to the conventional lending market, digital lending combats major challenges of the market that served as the bottleneck of growth for many enterprises and individuals in India.

In the good old days of banking, your chances of getting a loan often depended on how well you knew the bank manager and your reputation as a trustworthy customer. Banks were reluctant to lend to those who posed a credit risk or lacked credit history, and thus being unable to repay loans. Banks, as far as possible, tried to minimise loan defaults and get into an arduous debt recovery process. Since the turn of the century, however, the banking and financial industry has evolved and innovated in ways not seen before. The emergence of fintechs -- especially digital lenders and financing startups -- has made the disbursal of all kinds of loans so easy that you can now obtain a personal or an unsecured loan at the click of a mouse.

Today, terms like Gen-Z and Millennials are the craze words for most businesses world over as they account for more than 60% of the demography. Unsurprisingly, everyone wants to understand what moves them emotionally, physically and financially. Moreover, their communication and consumption behavior is shifting trends and in many cases, causing trends to emerge. One of these trends is that of the Digital lending marketplace where one can avail any kind of loans at the click of a button! Notwithstanding the higher cost of capital, the enticing factors of this digital lending marketplace are bespoke lending products, convenient & quick disbursement and completely paperless transactions.

While most traditional banks and credit unions realize the inefficiency and bad consumer experience created by legacy lending solutions, few have automated more than the application step. Even in those cases, the process is not simple or fast, resulting in prospect borrower abandonment. Subscribe to The Financial Brand via email for FREE!Over the past few years, more traditional and non-traditional lenders have developed improved digital lending processes. This includes investments in online applications and borrower portals, as well as new digital tools to improve borrower acquisition and servicing. For the most part, the digital transformation has focused on automating previous paper-based processes as opposed to significantly improving the borrower experience.

Internal lending processes must be transformed to eliminate friction and unneeded steps, with advanced analytics supporting proactive loan decisions. The biggest opportunity in the marketplace is the ability to continuously evaluate a customer's credit worthiness and need based on artificial intelligence (AI), including a pre-approval loan amount on the front screen of the online and mobile banking app and in alerts. The transformation must look at all current processes, refining what was done to better accommodate a digital consumer, using data, advanced analytics and artificial intelligence to eliminate steps and improve the process. The future of digital lending will reduce the friction associated with the borrowing process, eliminating paper and moving all of the steps of the customer journey to an online and mobile capability.

Digital lenders are pulling in all kinds of data, like purchases, SAT scores and public records. Digital lenders are pulling in all kinds of data, like purchases, SAT scores and public records. The terms of the next loan you get might depend less on your credit score and more on what a computer program thinks of your habits. Digital lending is expected to double in size over the next three years, reaching nearly 10 percent of all loans in the U.S. and Europe. There are now some 2,000 digital startups, many of which are using artificial intelligence to analyze the troves of data created every day.