While ‘digital lending’ has been a buzz phrase in recent times, it has no universally articulated definition. Due to this, the ‘size of prize’ has not been clearly stated, at least in the public domain. This article aims to define the phrase in the simplest possible manner and size the current as well as future market objectively. Defining the term ‘digital lending’ is important. Actually, Lending is simply the act of giving money on credit to another person called the Borrower against some pre-decided interest in return. This is a universal concept of banking which has got organized in the last few decades. The services are catered to Retail well as Institutional customers and changes according to the Economic Structures in different countries. The lending process starts with bringing a borrower onboard then collecting information about the borrower, then validation with the help of various documents deciding what is the amount of credit or loan should be approved to the borrower on the precise interest rates. This entire process gets on various digital platforms through the paperless process and with the help of electronic means will be called digital lending.
In other words, digital lending is the use of online technology to originate and renew loans in order to deliver faster and more efficient decisions. It makes the market of lending changes across the globe. The biggest challenge before the entire industry is to decide for a bank that how much money it should lend to his customer as Customer focus of Banking industry brings a narrow competition. In digital banking, the concept of Credit Score has evolved. Credit score which is a three digit numeric summary of entire credit behavior of a person. In recent times for the evolution of Banking made a resolution regarding a Credit history of a person while lending for any purpose. CIBIL an authority to issue credit score to the person by referring his base history of credit throughout years. Digital lending moreover considers such credit score provided by Agencies (like CIBIL in India) consider as a base platform for lending. That’s the digital lending process involves in checking the Behavioral Score Card of the customer before it lends money to the respective customer.
Digital lending platforms are becoming popular among youngsters who are in urgent need of money and prefer a paperless process for sharing documents. A market place acts as a single platform for borrowers to compare interest rates from various bank and financial institutions to get the best loan offers
As this entire procedure is online and with the help of electronic media there shall be a huge bulk of data related to the transactions and records made by the borrowers and lenders. Technology plays a very important role in setting up the network of digital lenders. Technology also brings in various private players as ‘Fintechs’ in the market these people are not just technologically sound but uses more advanced models of Data Analytics and social media along with it. Traditional banks have a big challenge to stand before search Techno-savvy organizations and provide a competitive advantage in the market especially in niche areas of digitalization.
Digital lending requires only minimal documentation for approving the loan and the turnaround time for sanctioning the loan is very less when compared to the traditional lending. The processing speed of loans and access to multiple lenders attracts the consumer. With digital loans, manual form filing is replaced by digital data capture; account analysis is automated, and no in-person visits are required making the process more streamlined and efficient for lenders and borrowers alike. Technology will change the face of the front end consumer experience. Data and automation, linked with data explosion, will revolutionize underwriting, providing an option to offer credit to all. Digitizing the lending process improves the borrower experience in several ways. It reduces frustration due to improved transparency about the process and the timeframe for a decision. And also it reduces delays blamed on the incomplete files that slow down the analysis of the loan application.
First, consumer behaviors are changing dramatically, shaped by experiences offered by internet giants. Second, there have been some rapid technological advances, led by the ever-increasing penetration of smartphones as well as the proliferation of data. Third, the regulatory environment is increasingly getting favourable with laws increasingly providing an impetus to the digital lending market. Finally, there have been some remarkable innovations in the operating models of lenders. These factors have played out similarly in India as well, resulting in an exponentially growing market Primary consumer research brings several interesting insights to the fore and validates India’s readiness to adopt digital lending. Almost 50 percent of loan seekers with internet access actually purchased digitally over the last 12 months. Digital lending presents a large opportunity in the Indian context. It is estimated that the total retail loans which could be disbursed digitally in the next 5 years could be over $1 trillion.
The digital revolution for lending purpose in banking sector has only just begun. Today we are in phase one, where most traditional banks offer their customers high-quality web and mobile sites/apps. An alternate approach is one where digital becomes not merely an additional feature but a fully integrated mobile experience in which customers use their Smartphone or Tablet to do everything from opening a new account and making payments to resolving credit card billing disputes, all without ever setting foot in a physical branch which improves the growth of banking sector and also provides a better customer satisfaction.
