The Power of Automating and Digitalizing Your Lending business

Automation has become synonymous to savings. Be it savings in time, dollars, or both. Banks and lending institutions around the world are now aware that a digital transformation can do them more good than continuing with their legacy lending processes that are more human-intensive and rely on way more paperwork that the world is used to these days.

However, automation and digitization go way beyond reducing manual processes and paperwork. For lenders who have embraced digital lending, automation has rewarded them with huge margins, sometimes over 50% [1], by just reducing approval times for SME lending from 20 days to 10 minutes.

Quick approvals and reduced time to cash allowed these digitized SME lenders to process a higher number of loan origination requests in a shorter time frame. A McKinsey analysis [2] of the same stated that by digitizing their lending processes, SME lenders with balance sheets of over $250 Bn could clock approximately $230 Mn in annual profits. Humongous profits such as these are now possible thanks to better cost efficiencies, reduced risk, increased applications, better pricing, and higher win rates.

The same principle applies to smaller SME lenders and P2P lenders who are either building a presence in the market or are yet to launch their lending services in a highly competitive market.

A completely bespoke and automated digital lending software can help them stand out in the market along with a clear idea of the niche or the target market they would be servicing. In this article, we dig into some of the powerful ways in which automation and digitization have changed the landscape for lending businesses and a couple of digital transformation pointers that lenders must be aware of while mapping their digital transformation journey.

Featured read: Benefits of Digitizing your Small-Business Lending

Digital transformation isn’t the same for all

While digital transformation might seem like an umbrella term applicable to all when it comes cost savings and optimization, the only way to make it work at its best capacity is to realize the fact that it varies largely by industries, segments, and products.

When it comes to lending businesses, lenders might target the personal loan segment, retail loans, corporate loans, mortgage-backed loans or SME loans. Each kind of loan product comes with its own specific requirements or drawbacks which digitization can help address.

For example, while personal loans can be sanctioned within a few minutes and with a few swipes on a mobile app, mortgage loans take longer given their complex regulatory requirements.

Having a clear understanding of the kind of loan the lender will be processing and the specific steps that can or cannot be automated can help the lender find the digital lending software solution that is perfect for their particular lending business.

In the current day, all banks, large or small, are particularly focused on SME lending and treating it as a digital priority. The SME lending market is pegged at a whopping €279 Bn [3]. The reason behind this valuation are the wealth of opportunities that lie in this market, right from improving customer experience to reducing lending costs by automating the lending process.

More digital lenders are now directing their focus towards digital lending software technology that helps them reduce their “time to yes” and “time to cash” substantially.

End-to-end digital transformation

 While a complete transformation of the lending journey might seem daunting to lenders who are used to the manual processes, the only way to conduct a successful digital transformation is to do so at a go. Piece-meal digital transformation comes with its own set of drawbacks such as losing focus on the prize, i.e. customer focus and process gaps and outliers that might creep in due to siloed digital transformation at a time.

End to end digital transformation does not mean rolling out one big change in one go, but rolling the transformation out across all steps and processes with incremental changes, much like how a Minimum Viable Product (MVP) is rolled out.

By limiting the scope of transformation in a way that it is not overwhelming yet is significant enough to drive value and visible change to motivate the entire organization and stakeholders to take interest and drive rapid implementation.

Each SME lender has a particular set of pain points which is very specific to their clientele, the market they are serving and the geo-political situations they are facing. Once they zero down on these requirements, they can work closely with their digital lending software provider to customize their lending processes down to a tee. A limited focus, MVP approach can help digital lenders avoid early-stage complexities and deliver a transformative solution that can be implemented quickly.

Testing out complex processes

 While digital transformation does bring in sea change and efficiencies when rolled out, risk managers are often wary of complete automation when it comes to approvals. There is a good reason for that. Underwriting and risk assessment requires going through a long list of covenants and criteria that are crucial for approvals and disbursements. This is what makes the underwriting process so time consuming and expensive.

Dependence on human intelligence when it comes to underwriting becomes a no brainer when a lending business is not sure about how effective the digital lending software would be. The best way to ensure that the automated lending software is as effective (if not more) is by testing the software on previous decisions for say over five years.

For new lenders, a proven and trusted lending origination software that is being used by their close competitors is a good way to zero down on the right software for them as well.

Starting small, growing big

 Yet another way of embracing the power of automation in lending business is by directing only a section of the applications through the automated route while the rest go through the usual manual lending route. This is referred to as swim lane. Lenders can start by automating as little as 15 per cent of their loan applications (preferably the less complex ones) and moving more applications into the swim lane as the automation proves successful.

Complete automation of lending processes can help build a seamless customer experience as well. Digital lenders can embrace the “multichannel, single application” method of SME lending by allowing their Relationship Managers walk the customer through the lending process and ensuring the application, verification, and any gaps are fulfilled without delay. This also allows digital lenders to cross sell by promoting better customer relationships.

Relationship managers using a digital lending software to onboard customers and fill in applications can provide loan approval in less than 10 minutes, and at an average window of 90 minutes for the more complex applications. That’s a lot of time and effort saved both on the part of the RMs, the lending business, and of course the customers who would definitely appreciate the quick approval and disbursement and would be much more inclined to recommend the lender to people in their network.


The power of automating and digitizing lending businesses is far reaching. It goes way beyond saving time and money. It helps boost employee faith in the business and motivates them to do more with their time freed of monotonous tasks. They feel valued and empowered.

Customers appreciate the reduced time to approvals and disbursements and are more open to recommending their services to others. They would also opt for the lender for quick loan top-ups instead of seeking out another lender.

As for lenders, automation means big savings, larger margins, better efficiencies, cost effectiveness, and an opportunity to focus on and roll out new products that could help them garner better market share.

  • December 2, 2021