Making your product digital is not enough at this time of technological advancements, especially in the lending industry. A digital borrower is savvy than ever before with never-ending expectations. While Interest rates and loan closing costs still play a big role when it comes to lending, but the consumer is seeking speedy approvals, simple processes, transparency, customer service and much more, while choosing a lender.
So, how can an online lender achieve its strategic organizational objective through the digital transformation? Before we jump to that, it is important for the organization to define certain things:
• How fast you want your lending turnaround time to be?
• What all business processes have a scope for automation or digitization?
• How agile should your organization be to customer needs?
Once an organization has this outlined, it is easy to build a digital lending strategy which is built around core competencies focused on changing consumer demands.
To support a successful digital lending strategy, digital lenders have to determine whether to build their own solution or buy a solution or partner with a fintech company. Most lenders these days go the partnering way because of the risk mitigation, lesser investments and a holistic domain knowledge offered. However, choosing a correct partner is not easy as it sounds and needs to be a thought through decision.
These are the things to keep in mind while choosing a fintech partner to support your digital lending strategy:
• Optimum features and functionalities: Defining the must have features for the solution is important. Post that you can weigh each solution against those features to make a decision. To provide some examples of features to look for – microservices architecture, hosted on the cloud, different integrations ranging from Bureau, Bank Credit assessment, identity verification, location verification, fraud checks, ACH processing, e-signatures etc.
• ROI potential: ROI of a solution has to be guaranteed on your business volume. With a solution based on low-cost system and ability to scale up as per requirement, you can improve ROI by assessing risk and reward potential faster for applications that meet your criteria and then even small loans become lucrative.
• Accuracy of scoring tools: A score predicts the creditworthiness of a borrower based on the type of loan and defined parameters as per the set weight. Having this insight sharpens separation of good and bad credit risks, and can show you where you are passing over applicants that would be a good bet. You can separate applicants by score levels into “buckets” for queuing and review. Because scores come with a reason, these can point your underwriters in the right direction for review, helping them work more productively, saving almost 20% of their time. A digital lending solution should give you the flexibility to define the scoring parameters yourself. Solutions with accurate scoring tools can gain you a lending expertise without really expanding headcount.
• Workflow engine: The solution to support your digital lending strategy should let your lending experts set rules for application approval and rejection. An ability to define this workflow for all the steps that an application goes through saves a lot of time and allows you to be up and running within a couple of weeks.
• Compliance: The solution should enforce consistency while making it easy for you to document compliance and answer questions. A rule-driven system improves decision consistency across channels, reducing opportunities for human subjectivity and errors. The system should also provide an audit trail, capturing information on the steps taken during the application process, while ensuring data privacy.
If you are a digital lender, you will need digital transformation not only for your customer facing processes but also for your internal or back office processes. These initiatives and investments will help you develop long term competitive advantage. Not only this, a digital lender would be able to disrupt the market in an innovative fashion.
Happy Lending and All the best for 2018!