Digital lending is changing the face of commerce.
As a result of this digital transformation, would-be borrowers are no longer constrained to apply for loans in person at financial institutions. As an alternative to paying in full for a desired product or service — anything from rowing machines to capital equipment to medical care — consumers and businesses can apply for financing to cover all or part of the purchase price using a smartphone, a laptop, or in person at any point of purchase.
Assuming the application is greenlighted, the buyer takes possession of the product or service and pays for it in increments over a stipulated period. That’s why this process is often referred to as “buy now, pay later,” or BNPL.
But first, wanted to check if you (or your staff) would like this brochure that breaks down how TurnKey Lender automation makes a decisive difference for lenders in 50+ countries.
Grand View Research pegged the 2020 value of digital lending to consumers and businesses at $4.9 billion, just in the US. By 2028, the consulting company sees the market growing in value to $14.4 billion, representing a compound annual growth rate of 24%. Worldwide, the fastest adoption through this period is likely to occur in Asia, followed (on a roughly equal footing) by consumers and organizations in Europe ex-Russia, Canada, and the US, according to the same source.
But before we get too far into this explainer, let’s distinguish between “digitalization” and “digitization.”
Digitization is the process of converting data and documents into digital formats that can be shared, analyzed, and reformatted to help with specific tasks or queries. Our topic, digitalization — note the “al” — is the process of converting business processes to digital formats instead of paper and manual-input spreadsheets.
Digital Lending Enables The Kind Of Convenience We’re Getting Used To
When digitalized, funding may be accessed remotely without (necessarily) involving a financial institution. In this view, “digit-ization” comes first, but “digital-ization” is where the rubber meets the road for businesses and their customers alike.
Digitalization fuels the rise of BNPL lending by empowering organizations of all kinds to extend credit to customers without requiring financial-institution involvement in ways that make lending operations cheaper to run and easier to tailor to the needs of the organization and its customers.
Just as online sellers such as Amazon and Walmart have made embedded lending a checkout option, software-as-a-service players are tapping into credit markets to help consumers and businesses make bite-size installment payments to help them get the services they need to live well or conduct business, as the case may be.
“Conceptually, helping people pay by installments isn’t far removed from monthly-subscription services popularized by Netflix and other streaming content providers,” says Elena Ionenko, co-founder and head of global operations for TurnKey Lender, a lending-platform provider to firms in more than 50 countries worldwide.
”It’s an idea we’re all familiar with from how we’ve come to consumer entertainment in recent years — extending it to other types of commerce doesn’t seem to be confusing people,” Ionenko adds.
Meanwhile, in a development that could not have been foreseen, the coronavirus pandemic has stalled economies, healthcare systems, and interpersonal interaction around the world. In doing so, says Ionenko, “The public-health crisis has inspired businesses to adopt cutting-edge technologies earlier than anticipated.”
Four characteristics delineate digital lending as it exists today.
-
Channel parity
In the old days, loan applications were tied to banks, credit unions, and single-purpose finance companies. These days (thanks again to digitalization), lenders are found in an array of channels, including:
- Online lenders
- Marketplace platforms
- P2P lenders
- Social media platforms
- Supply-chain specialists (including invoice
- Non-tech, non-finance lenders
And this is a shortlist. Digital lending can exist in or stem from just about any commercial scenario one can imagine — again due to its tech-enabled portability. Meanwhile, the success of SaaS-style lending tech providers like TurnKey Lender has further decoupled lending from old-school lenders.
-
Just the facts (and more of them than ever
When it comes to extending financing, the more inputs the lender has to help it understand applicants, the better. Before now, consumer lenders in the US had two inputs to consider: the applicants’ answers to questions about their income, assets, liabilities, and third-party credit scores. Now, advances in artificial intelligence let lenders make decisions based on an array of inputs around spending habits, bill-pay history, and other behavioral-finance traits that provide a much more rounded view of applicants than ever before.
-
UX to the nth degree
Borrowers want loan origination — from their standpoint, the process of asking for money — to be over with as fast as possible, whatever the decision. But, for lenders, securing a greater number of usable insights on loan applicants goes beyond its utility in responding to applicants at lightning speed. It goes beyond even the game-changing ability to set loan terms that are weighted more precisely than ever to the risks posed by individual borrowers. While those front-end considerations are paramount to improving user experiences with digital lending, better and more numerous insights also let lenders tailor their communications with customers around promotions, product offerings, and other initiatives.
-
Ubiquity
This one is easy. Any loan can be digitalized. There are no exceptions. That makes digital lending a player in any scenario under the sun that involves, or could involve, financing.
There are three ways to become a digital lender, but the first one — building a secure and compliant lending platform from the ground up — makes next to no sense for most non-tech outfits out there. That leaves:
- Outsourcing the lending function to a third party
- Using a “banking as a service” (or BaaS) provider that lets your business run its own white-label lending platform
The first, in which your business functions as a conduit for someone else’s lending, has the advantage of being about as “hands-off” as it gets. It can be more costly in the long run though, as these companies take (at least) a cut of any fees brought in.
The advantages of a banking-software solution that features end-to-end loan management include not having to split fees, retaining more scope for modifying lending terms and conditions, and providing brand consistency — important if you’re not keen to share customer relationships with third parties that remain in touch through the life of the loan.
Final thoughts
Of course, this is just the beginning of your digital lending education journey. But be assured, TurnKey Lender isn’t leaving you hanging. Here are just some of the resources we recommend you read next and should you have ANY questions about lending automation, digital credit or anything around those topics – our team will be thrilled to help. Book a call here.
Further reading
How Much It Costs to Digitalize a Lending Business
Steps of the Lending Process You Can and Should Automate
What You Need to Know About AML and KYC As a Digital Lender
Embedded Lending for Complete Beginners – Introduction, Business Value, Use Cases, and Potential
10 Easy Steps to Have a Completely Digital Loan Origination with Streamlined Customer Experience
