The Challenges of Running an Online Lending Business

Blog Post Financing Automation & AI

There is absolutely no denying that the lending game has changed in the last few years. Borrowers’ tastes have simply evolved, and traditional banks and credit unions are experiencing a consistent drop in popularity. There’s a bigger than ever demand for intuitive, accessible, and fair credit products all around the globe. For many new and experienced entrepreneurs, it’s a rare opportunity to stake their piece of the market or expand the business’ reach by offering an enjoyable fully digital lending experience for the borrowers as well as the staff. 

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We can thank the digital age for this, as financial technology companies have introduced a number of innovative technologies and business practices that make the old-school ways of applying for loans obsolete.

From auto and small business loans to personal loans, nearly everything can be done online these days.

In the era of online banking, mobile deposits, instant transfers and automation, people simply don’t accept slow-moving or paper-based loan application processes. Having to speak to an actual human being or physically travel to a brick-and-mortar financial institution just won’t cut it for modern borrowers.

Today’s borrowers, both consumers and businesses, expect and demand immediacy, security, and easy-to-navigate online user experience when they’re shopping around for loan options.

Fortunately for them, online lenders have been able to fill in the gaps that traditional banking institutions have left – and they’ve been doing it well.

The Growing Popularity of Online Lending

Fintech companies have been rapidly increasing their share of the lending market, eating away at the shrinking dominance of traditional banks.

For example, FinTech companies accounted for 38 percent of the personal loan space. Five years prior, it had only made up 5 percent of the market. And once the chips fell in their places and the lending world adjusted to the fully-remote digital-first nature of economy post-2020, finance providers that haven’t embraced fintech solutions to digitize their operations, have ceased to exist.  

Traditional banks, on the other hand, saw their market share for personal loans drop from 40 percent to 28 percent between 2013 and 2018. So, why are borrowers turning to online lending services and shying away from conventional banking organizations?

It mostly comes down to ease, speed and diversity of products.

These days, innovative online lending organizations can provide multiple quotes in just minutes, and often disperse funds within one or two business days. 

On top of that, online lenders are offering fully-online experiences, alternative credit scoring models, and a myriad of other advanced features that draw borrowers in and successfully close loan applications.

Providing this level of innovation, however, is far from easy. Especially for younger online lending organizations, there are significant barriers to entry. 

Moreover, there is a uniquely difficult set of challenges that online lenders face in the current market environment.

Thankfully, recent advances in lending technology have made these obstacles more easily surmountable – especially for online lending startups.

The Biggest Challenges Faced by Online Lenders

Running an online lending organization in the digital age can be wildly complex (if you’re not letting the right automation solution take it off your plate).

From compliance and cybersecurity to providing an appealing user experience, there are a lot of moving parts that business leaders need to manage.

So, what are the largest challenges that online lenders confront these days?

1.Providing a Speedy Loan Origination Process

In the age of instantaneous everything, consumers have grown accustomed to quick decisions and immediate purchases. 

Borrowers are no different.

In today’s highly-competitive online lending area, online lenders that don’t offer an almost immediate loan decision run an incredibly high risk of losing their borrowers to a competitor. Even a browser delay of 60 seconds could lead to a potential borrower clicking around to a different online lender.

Online lending companies must provide quick decisions for their customers in the current market environment, and relying on outdated loan origination procedures isn’t enough.

Luckily, modern online lenders can implement a third-party loan origination software solution that automates their loan origination process – so they don’t even have to lift a finger while their borrowers get rapid loan decisions.

2.Limited Resources to Set Up an End-to-End Lending Process

Startups in the online lending space, like startups in any sector, often find themselves trying to work with limited capital – financial and human.

And, let’s face it: setting up an end-to-end online lending flow from scratch is completely inaccessible for a huge swath of the startup community.

Fortunately, turning to an online lending software provider to design a centralized, out-of-the-box system that you don’t have to set up yourself has become affordable – and helped online lenders get off the ground relatively easily.

3. Keeping up with Regulations

Online businesses, especially those that work with sensitive consumer data, have to achieve a number of compliance certifications these days.

From data privacy laws to regulations that protect credit card data, it can be incredibly difficult to keep track – let alone fund an entire compliance team to help you achieve and maintain regulatory compliance.

Trying to stay on top of compliance issues, thankfully, is much easier today with all-in-one lending solutions like TurnKey Lender that make sure their clients stay up to date on all data privacy and banking regulations.

4. Banking with Today’s Borrowers

Borrowers in the digital age don’t only have new tastes when it comes to their online lending shopping experience – they also have different risk profiles.

There are millions of American consumers that don’t have enough established credit history to be eligible for traditional loans from old-school banking organizations, and often find themselves turning to 

Online lending businesses have an edge over traditional banks when they offer alternative ways of assessing borrower risk.

By looking at borrower characteristics like education level and consistent income, for example, rather than increasingly-obsolete credit scoring methods from traditional credit reporting organizations, online businesses can reach those millions of non-traditional borrowers.

That’s a huge market, but it’s no easy feat to offer this type of borrower assessment as an online lending startup.

By working with an all-in-one online lending solution, like TurnKey Lender, leverage alternative risk assessment practices like this is simple – and fully automated. 

5. Offering Seamless Loan Servicing

As an online lending startup, it’s easy to want to rely on outdated processes for loan servicing, like hiring team members to handle debt collection or requiring any form of paper-based interactions.

Setting up an automated, fully-online system that leverages paperless statements and centralized tracking from scratch is incredibly expensive – requiring expertise and upfront costs that very few online lending startups can afford.

Customers today, however, are looking for lenders that offer them an easy-to-navigate and fully-digital experience once their loan is funded.

Failing to provide digital, comprehensive loan servicing in a sleek and modern way can be the kiss of death for any online lending company.

The Most Cost-Effective Solution for Online Lenders

Fortunately, online lenders don’t have to embark on their journeys alone. Confronting these challenges is a tall order, but designing and executing everything from scratch isn’t the only option.

TurnKey Lender provides an all-in-one online lending solution that centralizes and automates the majority of your loan origination and servicing processes.

By partnering with TurnKey lender, you can offload your loan application procedure, debt collection, online statements, risk assessments and more – so you can focus on developing your core business proposition instead of sweating the small details.

By automating workflows and leveraging a single out-of-the-box product like TurnKey Lender’s, your online lending operation will run much more smoothly, quickly, and efficiently.

And, more importantly, by outsourcing the back-end complexity of running an online lending company to a third-party partner like TurnKey, you can dedicate your resources toward continuing to innovate your product suite and win more customers.

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