Technology-led innovation has brought ample opportunities for expansion in the consumer lending sector. As a result, consumers have zillions of options for finding loans and accessing lenders on various digital platforms.

The competition is tough, with numerous alternatives for consumers to choose from, then what separates you from your competitors?

The efficiency, convenience, responsiveness, and optimized customer experience of the onboarding and lending process separate you from others.

In this article, we will discuss how tech is changing consumer lending and go through some digital lending trends impacting the lending industry in 2023 and beyond.

Let's begin!

What is Meant by Consumer Lending?

Sometimes in life, we need a financial push to meet specific needs. Consumer loans help us get that push.

Suppose, for example, Mr. Chris; a painter needs finances to pay for his daughter's school fees or the house rent; he would need a consumer loan lent by his bank or other financial institution.

Consumer lending deals with the financing of personal loans. It refers to loan services primarily meant for the personal needs of individuals. These loans are long-term in nature and are provided by financial institutions. In some instances, the lender may also be a business that offers in-house credit to individuals in exchange for the company.

As opposed to business lending, consumer loan services do not need collateral.

How Technology is Changing The Consumer Lending?

Till some time back, getting a loan was a tedious process. Consumers would have to fill out lengthy and complicated forms. The approval would take weeks.

With an increase in the number of lending firms adopting cutting-edge technologies, borrowers can now get almost instantaneous loan approvals and money in their bank accounts.

It is evident that digital transformation is re-writing the consumer lending rulebook. Technical innovation is changing the sector. One who doesn't keep up with these changes will fall behind the more flexible rivals.

Here's how technology is transforming consumer lending.

Consumer Lending

1. Consumer data

The consumer lending industry runs on an extensive volume of data. That data plays a vital role in building consumer-oriented lending services.

Technology helps lending firms structure data exchanges and standardize and analyze data exchanged. You can study the borrower's creditworthiness by analyzing their background and making your lending products customizable for them.

Moreover, studying your consumer's credit history enhances the predictive performance of your digital solution. Besides, you can access alternative credit data sources such as property and bill payments can give you a clearer picture and help you make accurate risk assessments.

Such credit scoring based on alternative data can improve your lending performance.

In addition, because this data is collated at a central repository, you can easily access it, analyze it, and make crucial decisions.

2. Innovation in vetting applicant

Innovative, tech-driven credit mechanisms are coming up in the sector with the proposition that traditional methods of applicant approval are no longer sufficient. In fact, they depict an incomplete sign of applicants' creditworthiness.

By integrating AI technology, new credit models are introduced. These models are based on information surrounding many different data points like borrowers' employment history, educational background, spending habits, etc. AI-backed algorithms work better to check if the information shared by the borrower is accurate and if they would be able to clear the debts on time.

This new credit score mechanism based on new technology is seen as the future of the lending industry.

3. Process automation and API integration

Millennials and other new-age customers look for quick and hassle-free access to loans - something that's not easy with traditional methods. In fact, the speed and simplicity of solutions are no longer considered an add-on - They are the must-haves for today's digital solutions.

New, tech-advanced digital lending solutions are addressing these old challenges with the help of RPA (Robotic Process Automation). RPA automates the process of loan initiation, documentation, verification, and other manual and time-consuming tasks to make way for an improved customer experience.

And when RPA is integrated with API (Application Programming Interfaces), it creates a win-win situation for all.

By integrating RPA and API, your customers can easily access the various digital lending products offered while you can get a more extensive scope for innovations. Moreover, it allows you to access data from anywhere and securely engage potential customers.

4. Artificial intelligence

credit score assesment

AI is transforming the consumer lending process big time.

AI in lending aims to simplify and ease administrative tasks, help lending firms' staff free themselves from many time-consuming tasks, and focus on building customer relationships.

Smooth onboarding of customers and low turnaround time in risk and compliance processes are possible with AI integration. In addition, since AI promises positive consumer experiences, you will get customer loyalty and referrals.

AI can also help you make predictive lending possible, leading to customer retention. It can also help you put together and analyze raw data and draw valuable insights.

5. Doing away with the need for intermediaries

Blockchain is revolutionizing the modern customer lending industry.

With the support of blockchain, digital lending firms can build a high-trust and low-cost solution.

Blockchain-based platforms allow borrowers to deal directly with lenders on the interest rate, number of installments, and transaction duration without the need for any intermediaries.

They both can negotiate terms on smart contracts. And if the borrower cannot abide by the terms stated in a smart contract, it adds late payment fees to the actual amount paid.

6. Efficiency with improved upkeep time

Cloud computing is solving the uptime concerns of the consumer lending sector. How? By making the complete loan disbursal process faster and hassle-free than before.

With cloud storage, digital lending solutions can centralize information access that streamlines the loan process and promote transparency across all stakeholders - borrowers, investors, regulators, lenders, etc.

Moreover, the cloud offers a kind of scalability, data integrity, and security never been seen before.

7. Identity and cybersecurity

As loan transactions become more digital and remote, identity protection and cybersecurity become very vital in the world of lending.

Borrower defaulting is one of the most significant risks for lenders here. However, constantly updated credit information help lenders make perfect business decisions with confidence.

By implementing technologies such as blockchain and biometrics, you will be able to detect discrepancies and make room for transparency.

According to some analysts, 2023 can be the turning point for the fintech industry. It will reshape the digital lending landscape for the years to come.

As the digital lending sector continues to evolve to accommodate the new trends for 2023 and beyond, let's check out some of the most significant trends.

1. Technological advancements based on AI, ML, and Analytics

During the pandemic, the fintech sector realized the importance of implementing Artificial Intelligence and data analytics in their business processes.

Today, artificial intelligence, machine learning, and data analytics are leading the changing lending industry. In fact, their roles will only increase with time.

Lending firms are continuously making use of these technologies to enhance consumer lending process efficiencies and ease of use. Many banks today have at least one AI capability in their processes, like predictive analysis, bots for handling basic customer service requests, and recommendation engines.

What's more?

Data analytics is helping lenders go from being data-driven to data-led. In addition, AI/ML and data analytics are making way for innovative use cases in the sector.

2. NLP will ensure enhanced customer experiences

NLP, or natural language processing, is another trend that the industry is following. We'll see many more smart lending systems using NLP to recognize and interpret customers' queries and translate them into actionable data.

Some of the use cases of NLP that the digital lending firms will be experimenting with this year include the following –

  • Lenders will offer advice to customers' queries through a chatbot.
  • Lenders can analyze customers' feedback and get valuable insights for improving the customer experience.
  • Lenders will analyze the data to enhance credit scoring accuracy.

3. End-to-end digitization

digital lending

Growing digitization is trending in the customer lending sector, and this change has been taking place gradually.

The trend is picking up because it facilitates financial companies to streamline their operations.

Such platforms offer a personalized experience to each user segment. Besides, digitization focuses on creating paperless and AI-driven companies. It's excellent at reducing the workload of your loan executives and underwriters and also provides borrowers with a smooth loan process.

4. Omnichannel capabilities

Users today look for flexibility in terms of platforms, operating systems, and gadgets they use to access lending platforms.

Omnichannel capabilities built today in lending make it easy for users to move from one platform to another without any change in experience.

These omnichannel capabilities allow borrowers to pick up on their partly-filled loan application forms, which they began filling on their phones or other devices.

5. The lending cloud

Most sophisticated lending applications demand a highly scalable and secure infrastructure. The cloud is one such trend that helps lenders bring all the modern technologies together, making room for them to scale up/down based on demand. In addition, the infrastructure thus built is secure, cost-optimized, and compliant at all times.

Cloud adoption allows lenders to stay focused on business growth instead of handling support, maintenance, backup, and recovery, which is easily taken care of by the hosting platforms.

6. Regulatory sandboxing for enhanced security

The consumer lending industry needs regulation to ensure transactions' ethics, security, and safety. Sandboxing is how this factor can be introduced in the modern lending platform.

Sandboxing is a mode of assessing newly-built lending services in a controlled setting for the regulators to conduct their tests before a complete app rollout.

Develop Digital Lending Solutions with Imaginovation

The digital lending industry has become very competitive, with traditional financial firms competing with, or sometimes joining hands with, fintech solutions.

Digitization is picking up at an incredible pace.

Are you, too, looking to build a dynamic lending solution for your customers?

Imaginovation can help you revamp the lending and borrowing experience in the face of this rapidly changing digital lending landscape. We can build a modern but simplified lending solution for you.

Our end-to-end digitized solution will fulfill your customers' auto, home, student, and personal loan requirements.

Contact us at Imaginovation. We will help you meet your borrowers' expectations of a frictionless experience by developing a customized lending solution.

Imaginovation is an award-winning web and mobile app development agency with vast experience crafting remarkable digital success stories for diverse companies.

Let's talk.

Author

Michael Georgiou

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