If you’re waiting for digital finance to become a “thing,” then you’re missing the boat.
It became a thing — that is, a service so widespread as to be increasingly expected by customers — in 2020, ignited by social-distancing dictates of the coronavirus pandemic and propelled by earlier technological innovations around two basic problems.
1. Embedding functionality: APIs
Application-processing interfaces are bits of software coding that enable applications to work together. An example? The apps on your smartphone. Those software bundles are designed to work with and within the operating system of your handheld device. Similarly, by means of APIs, an embedded financing platform can work inside an organization’s system, sales, messaging, and accounting software to provide the reach and functionality a lending platform needs
2. Fast-tracking decisions: artificial intelligence
The point of automation is to lighten the load for humans. But automation calls for processing, which calls for sorting, which comes down to decision making — which usually calls for human intervention. AI brings its predictive might to the task of narrowing choices down to only the most relevant, sparing people for higher-value oversight and trouble-shooting roles
“With APIs ensuring smooth functionality, and AI imposing predictive order on a chaos of possibilities around credit decisioning against a backdrop of accelerated uptake around remote work and social distancing, digital finance is taking off,” says Elena Ionenko, co-founder of TurnKey Lender, a pace-setter in the lending-tech arena.
Five benefits of digital lending (for the lender)
“And increasingly,” adds Ionenko, “consumers and businesses are alert to the possibilities of ‘buy now, pay later’ financing at just about any point of sale imaginable.”
The embedded finance market is worth about $45 billion in revenue this year, according to Juniper Research. Of that, embedded lending accounts for about a fourth. By 2026, Juniper expects that number to top $138 billion, for a surge of 221%. Also noteworthy, between early February 2020, as the pandemic was picking up steam, and late October 2020, media mentions of embedded finance increased more than one hundred times, according to CBInsights.
The advantages of digitalization in the lending sphere boil down to five primary benefits.
- Reducing time to market
- Reducing the cost of running a lending business
- Eliminating cumbersome paperwork and unnecessary human error
- Replacing outdated processes with software that’s customizable to the needs of the enterprise
- Cutting credit risks with AI-driven credit scoring
As implied by “software that’s customizable to the needs of the enterprise,” businesses have different requirements when it comes to lending automation. Some just want the basics: borrower evaluation, decisioning, and funds disbursement. Others want to bolster loan servicing and collections. And some organizations seek automation for the entire financing process with an inclusive box solution. For them, an end-to-end lending solution may be preferable because it confers super-smooth interaction and heightened functionality.
The unstoppable rise of peer-to-peer lending
Meanwhile, for borrowers, seeking credit from lenders with cutting-edge lending software confers four principal benefits.
1. Faster approvals. P2P lending lives online, so it confers an immediate competitive advantage over traditional lenders when it comes to speed. What used to take weeks or days now takes about five minutes thanks to advanced automation solutions.
2. Lower origination fees. Depending on the lender, origination fees could cost the borrower anywhere from 0.5% to 5.0% of the loan. But lenders backed by industry-standard software, the cost of artificial-intelligence-powered origination have lower overhead costs, which they can in turn pass on to their customers.
3. A shot at a better interest rate. P2P lenders aren’t as heavily regulated and don’t have to fund branch networks compared with traditional lenders. As a result — and as a vital competitive advantage — they typically levy lower pay-back fees.
4. Initial quotes that don’t impair credit scores. Lenders only do a basic search of the borrower’s data, letting the borrower continue hunting for better offers with their original scores intact.
These advantages stand out when it comes to peer-to-peer lending — which involves extending credit to individuals or businesses, sometimes as a sideline — is primed for significant growth, fueled by lower operational costs for lenders and broader availability for borrowers. With lower overhead, P2P lending — also known as “social” and “crowd” lending — can achieve higher overall returns by lending money at lower rates than brick-and-mortar competitors.
Microfinancing, a type of P2P lending aimed at micro-businesses and startups, is expected to grow at rates in line with that of digital lending as a whole. Valued at $134.4 billion in 2019, Allied Market Research expects the micro-lending market to hit $383.84 billion by 2027, for a compound annual growth rate of nearly 13%.
To combat sophisticated and adaptive hackers and fraudsters, P2P lenders and other companies have to be armed with the latest fraud-prevention technologies available. This extends to no-brainers like applicable versions of anti-money-laundering and know-your-customer rules.
On the fraud front, an advanced digital-lending platform helps creditors double-check government-issued identity numbers, scan for blacklisted customers, check for bankruptcy, number of active loans, even whether a loan applicant has relatives on staff.
When it comes to the security of your customers’ personal information, some digital-lending-platform providers can ensure the protection of information from unauthorized access, loss, or damage while supporting convenience and ease of use for everybody involved. TurnKey Lender, for example, boasts nearly a dozen international security certifications, including the coveted SOC 2 Types I & II.
TurnKey Lender: a leader in smart financing technology
TurnKey Lender, which operates in more than 50 legal jurisdictions worldwide, also stands out for the rigor of its compliance. To skirt the fintech’s in-depth and constantly updated compliance protocols is to risk regulatory fines, a tarnished brand, and over time, weaker sales.
“Even before we founded TurnKey Lender in 2014, our core team was helping businesses automate their lending and banking operations,” says Ionenko. “This background has given us the experience and insight to build a robust and versatile lending platform that meets the needs of lenders of all types in nearly every situation imaginable.”
The results of TurnKey’s unique positioning as a pioneering lend-tech maker that operates around the world include:
- Scalability to meet immediate and long-term business needs
- End-to-end integrated functionality with a modular structure (only pay for what you use)
- A fun, pleasant, and intuitive experience for all users
- Cloud-based versus on-premises to save on money and storage space for servers
- Broad, integrated origination and servicing modules
- Intelligent automation approaches and proprietary configurable credit scoring
- Ease of business logic customization
- Regional platform versions for selected markets
- Short time to market and learning curve
“For over a decade, we’ve been scrutinizing the pain points credit providers and their staff members have to endure,” says Ionenko. “This has led us into a process of constant improvement to address the evolving needs of a client base consisting of everything from global banks to capital-equipment providers, healthcare practices, and community-development organizations.”