Digital lending platforms use technology to streamline the lending process and communication between lenders and borrowers. These online and mobile applications enable consumers to apply for loans anywhere and anytime without filling out the extensive paperwork generally required in traditional lending.
Digital lending platforms took the first technological steps beyond traditional lending systems, providing more convenience and responsiveness for consumers. AI lending goes even further, with its ability to crunch far more data than a human can evaluate and produce quick, accurate lending decisions. But why do you need to invest in this technology for your business?
Consumer lending has experienced constrained growth recently. As consumers have battled inflation, rising interest rates, and the reinstatement of student loan payments, their spending power and savings rates have diminished – leading to elevated loan balances and a rise in overdue credit card and auto loan balances.[1] Lenders have responded by tightening their lending standards. Nearly 60% of households found securing credit more challenging than the previous year.[2]
This problem doesn’t only affect borrowers. In the current economic climate of rate and market uncertainty and heightened business competition, many banks feel challenged to find enough customers to grow while effectively managing risk and profitability. Digital lending platforms, especially those that incorporate AI, can be effective tools in accomplishing these goals.
Benefits of Digital Lending Platforms
You and your customers can benefit from a digital lending platform in multiple ways.
1. Streamlined loan processing and faster approvals
A digital lending platform will help you automate more processes effectively, with less human intervention. Digitization can make it easier and less costly to run the day-to-day operations of any kind of business, and banking – with its complex and critical operations – is no exception.
One of the hardest hurdles for a growing business to overcome is keeping up with the resources and capabilities needed to service it. The old manual back office model isn’t easy to scale – it takes time and money to add equipment and staff. Fortunately, digital lending platforms can handle high volumes of loan applications and transactions and are easily scalable when a business expands.
AI lending platforms are able to handle high volumes in part because of their efficiency and processing speed. AI can crunch far more data than a human could ever evaluate and produce quick, accurate lending decisions. This drives loan approval times down significantly – to days, hours, or even minutes, depending on the type of loan – with cash in the customer’s hand often in less than 24 hours.
2. Enhanced customer experience with user-friendly interfaces
No matter how comfortable your offices are or how friendly your people are, it can’t compare with the convenience to customers of being able to fill out a loan application in the comfort of their own home at any time that works for them. And given how much they’ve become used to doing conveniently online in the modern digital age – buying everything from food to cars, having all their random questions answered, getting a medical consultation, applying to college, closing on a home, etc – your customers have come to expect this level of service from financial businesses too.
Instead of filling out reams of paperwork in a wood-paneled office, prospective borrowers can go on a digital platform and fill out a fairly simple application. They can receive their decision quickly and equally conveniently and, if approved, generally have quick access to their funds.
If they have any questions or problems along the way, a digital lending platform can include access to a chatbot designed to guide them through the application steps, answer common questions, or point them to any other resources they might need. As AI becomes more adept at communicating in natural human language, these virtual customer service agents become easier to use and more effective in solving problems.
3. Improved risk assessment through advanced data analytics
Streamlined loan processing, faster approvals, and a satisfying customer experience are benefits that can increase your appeal to consumers and help you grow your business. However, risk management is an important factor in creating viable and lasting growth. Fortunately, artificial intelligence in finance can not only be instrumental in finding qualified borrowers that traditional credit scoring might consider ineligible. It can also produce a more accurate risk assessment for better repayment outcomes.
AI can make more accurate loan decisions due to the amount of data involved. Traditional loan decisions rely substantially on credit history. The underwriter looks through a credit report for clues to how well an applicant handled car loans, student loans, and other lines of credit. These clues are intended to help them predict a borrower’s ability to pay back what they borrow. If a credit history is too brief or there have been late payments or defaults in the past, the applicant will likely not be approved.
However, what about the consumer who has turned their financial life around after making a few early mistakes? Or the young person who has demonstrated responsibility in their spending and saving patterns but hasn’t yet had the chance to handle credit?
The “big data” collected by AI gives lenders a detailed view of an individual’s purchasing and lifestyle patterns, social media activity, professional licenses, responsibility level, potential major expenses, and risk of default. On a micro level, it offers lenders very specific insights into the daily patterns of individual consumers while, on a macro level, it can even take current market trends into account that have the potential to affect a customer’s ability to pay.
A Key to Future Business Growth
Digital lending platforms with AI promise to unleash new levels of innovation, including simplifying access to applications and resources, offering a better customer experience from start to finish, enhancing rapid lending decision-making, and improving risk controls. This technological shift is already well underway.
Given the logarithmic pace of recent technological progress, it’s extremely likely we’ll see even more advancements over the next few years in lending technologies and their capacity to boost efficiency and attract and retain customers. Remaining competitive and growing your business is likely to depend more and more on keeping up with continuing advances in innovation.
Fortunately, that is an attainable goal. While few lenders have the financial or human resources to build their own AI-powered digital lending platform in-house, partnering with an innovative AI solutions provider can be an effective and cost-efficient option.
The Federal Reserve Bank recently published a research paper on the expanding role of bank-fintech partnerships and found that fintech partnerships result in banks being more likely to offer credit cards, personal loans, and mortgage loans to credit newbies and below-prime consumers — and also more likely to grant larger credit limits to those consumers[3].
Research[4] predicts that the global market for AI platform lending will experience a projected compound annual growth rate (CAGR) of 25% through 2033. This isn’t surprising. Data has always been the foundation of lending, and lenders are always looking for better ways to use it.
