We Surveyed 40+ Decision Makers in the Credit Industry on the Digitalization of the Lending Industry. Here is What They Think.

Blog Post Digital Lending Research

At the end of May 2020, as the financial world scrambles to adjust to the new reality, fintechs are in a unique position to grant SMEs and enterprises a truly intelligent and contactless digital lending process. TurnKey Lender, as a provider of the industry-leading Unified Lending Management (ULM) solutions, conducted a survey with lending business decision-makers at the 2019 December Singapore FinTech Festival just prior to the world shifting.

The event took place just before the economic and healthcare crises, and, if anything, the trend of global digitalization of financial services has just given the automation and digitalization trend an unprecedented boost as the world economies shift to recover. The same way the 2008 crisis made way for e-commerce as we know it, this one time there is the potential to do the same for e-lending. 

At this year’s Singapore Fintech Festival, attended by industry-leading finance professionals from around the globe, TurnKey Lender used the opportunity to speak to leaders of different crediting businesses to get decision-makers’ thoughts on the digital transformation of the industry.  The goal of the survey was to get first-hand understanding from lenders as to the extent to which the crediting industry has digitalized. The results are presented below. 

Current Attitude Towards Digital Lending (December 2020)

To give you an idea as to which 40+ crediting decision-makers shared insights, of the respondents, 70.7% were already working with credit products and either looking to continue or to start the digitalization of their processes and 7% of the responders were looking to start a digital lending operation in the next 12-18 months. 

Market Share of Small Lenders

One important trend we observed of those surveyed was the fact that a significant portion (28%) of lenders are running small operations with a portfolio of under $10 million. This shows the monopoly of traditional lenders coming to an end.

Savvy lenders have figured out a way to make digital crediting easy and affordable both for the business owner and the borrower.  These lenders understand the strategies that will work for the new generation of digital lenders. 

Traditional lenders are also keeping strong with 57.13% of the respondents operating a portfolio ranging from $10 million to $10 billion. You can see a more granular distribution below.

Key Objectives for Lenders in 2020

The most important goals lenders see for 2020 (as of December 2019) are distributed as follows:

  • Showing just how important digitalization is 57.1% of lenders will start/continue the digital transformation of their business.
  • 50% will work on reducing credit risk and operational costs.
  • 50% will invest in improving user experience, retention, and LTV.
  • Backing up the claim that it’s cheaper to retain clients than convert new ones 32.14% of lenders are going to launch new lending products for existing clients.
  • 21.4% will expand to new markets with new products.
  • Surprisingly enough just 10.7% of lenders will put in the effort to further improve regulatory compliance of their business.

The Choice of Lending Products 

The credit products that are commonly offered by lenders that have already gone through or plan to go through digitalization is skewed towards the smaller SME loans. Yet a large portion of credit is still going towards larger financing needs like mortgages or student loans. More specific statistics are as follows:

  • 67.9% – SME loans
  • 35.7% – Auto finance
  • 35.7% – Mortgages
  • 32.1% – Unsecured personal loans
  • 25% – Home improvement loans
  • 21.4% – Microfinance
  • 14.29% – In-house financing
  • 10.7% – Student loans

The Use of Digital Channels by Lenders

Regarding the level of lending digitalization, people often wonder how popular digital channels among credit providers are. Despite all the talk of digitalization, more than 35% of lenders use NO digital channels in their efforts. Meaning more than ⅓ of lenders will all need automation to catch up to what borrowers want.

But the digital space isn’t competition-free, 25% of responders use both web and mobile to convert more customers. 32.1% only rely on their website in terms of digital and 7.1% decided to only go mobile.

Then the question arises if the people who haven’t digitalized lending yet are considering to. And the results are:

  • 50% are already working on the transformation.
  • 20% plan to start within the next 12 months.
  • 30% are not looking to start in the next 12-18 months.

Of those who are planning to purchase digital lending products in the foreseeable future they plan to go one of two ways:

  • 14% of creditors are going to create the digital lending solution internally.
  • 85% will purchase a ready-made solution from a technology vendor.

This tells us a lot about the level of trust and technology reliability software companies in the lending industry have achieved. 

Expected Timeframe for Results from Digital Solution Implementation (as of December 2019)

71% believe that within a year they are going to see the results of digitalizing their lending processes. And the remainder are expecting to start seeing the results within the next 1-5 years. 

Reasons Not to Digitalize Lending (as of December 2019)

Almost every lender we interviewed understands the value and long-term reward of lending digitalization.  However,

  • 20% – identify the high cost of new technology implementation 
  • 60% – fear lack of team expertise
  • 30% – Can’t find a proper solution

Some of the other reasons include fear of regulation and even customers not being ready for a digital solution. However, it’s important for companies to understand that with the right lending automation solution there is enough flexibility to be able to offer both traditional and digital credit products. 

Percentage of Loans Originated Online

Even though lenders may offer both paper-based and online origination, they can use their staff to originate the loans in the system for the borrower. Yet, not everyone capitalized on that opportunity to streamline operations and save costs.

  • 55.5% of lenders originate less than 25% of loans online. Keep in mind, that may mean 15% as well as 0.5%.
  • 16.6% originate somewhere within the range of 25%-50% online.
  • 27.7% have already achieved 75%-100% on online loan origination.

Even though the majority still don’t use digital origination as the go-to way to close new loans, the trend is definitely going this way.

Means of Digitalization for Online Lenders

By this time, we’ve already established that digital lending, even as of December 2019, is gaining traction in the crediting industry increasingly fast.  So it’s time to see what kind of a solution do lenders use to address their needs. 

  • 55.5% – A solution that was developed internally.  In our experience, this usually means that at the time of digitalization, the lender didn’t have a good enough software choice for the digital solution.
  • 38.8% – Purchased a ready-made solution from a technology vendor. This means that these companies carried out the research that led them to understand the value of the proper lending automation system that has all the functionality ready and tested out of the box.
  • 5.5% – Solution was created from scratch by an outsourcing company. That one isn’t as popular as the outsourcing companies don’t necessarily have the needed expertise.  For example, they may have the resources to create a digital lending solution, but they need to create an equivalent of a ready-made solution from scratch. 

Prioritization of Lending Processes Automation

Depending on the requirements of each lending operation, the prioritization of processes to automate differs. The results here aren’t that surprising. To date, many of the traditional lenders take up to 9 days for the complete process of loan origination.  For comparison, with TurnKey Lender these 9 days can be reduced to several minutes. 

  • 76.4%  – Loan Origination
  • 52.9% – Underwriting
  • 52.9% – Decision making
  • 35.2% – Servicing
  • 23.5% – Collateral
  • 29.4% – Debt collection
  • 52.9% – Reporting
  • 17.6% – All (end-to-end automation)

Are Lenders Happy with their Digital Solutions?

Another question we were wondering is if lenders were fully satisfied with their digital lending solutions.  And even though the digitalization trend is undeniable, credit providers aren’t very happy.  The areas that need most improvements are:

  • 38.8% – Origination
  • 55.5% – Underwriting
  • 72.2% – Decision making
  • 38.8% – Servicing
  • 38.8% – Collateral
  • 38.8% – Debt collection
  • 38.8% – Reporting
  • Just 11.1% are fully satisfied.

And as a result, we get a clear picture of market demand for financial technology software providers.  According to our respondents, 72.2% think they could do better in terms of digital lending, and 11.1% are absolutely dissatisfied.

What FinTech Providers Should Pay Attention To

Lenders have also shared with us a list of the biggest drawbacks of the systems they currently use.  These drawbacks pose the perfect improvement points for anyone developing financial technology solutions for lenders.

  • For 22.2%, the system developed in-house is too costly to maintain
  • For 33.3% of lenders, the automation solution doesn’t have enough functionality
  • 50% of lenders complain to not have sufficient integration capabilities with their current system
  • 38.8% have problems with the user experience and interface their provider is able to deliver, both on the web and on mobile. 
  • 16.6% of lenders aren’t happy with the depth and quality of the reporting functionality they get with their digital lending software. And if there’s anything digitalization does bring us, it’s a ton of data that should be used to grow the business.

Some of the other responses to take into account include the complexity of transitioning from manual processes, the transparency of the digital solution, the overall business performance, and the cost of transition from legacy systems.

Credit Decisioning Automation

One of the key differences digitalization affords is intelligent credit decisioning.  Borrower evaluation and the right loan decisions no longer need to take a lot of time and effort. With the right loan origination automation solution, this process can be fully automatic and take seconds. 

  • 50% of lenders still aren’t utilizing the capabilities of intelligent credit scoring and rely on traditional scoring methods. 
  • By comparison, just 16.6% of lenders rely on alternative scoring methods in their origination.
  • The good news is that 27.7% of creditors have learned to trust the technology enough to use the combination of the two approaches. 
  • And an even more encouraging statistic states that 27.7% of lenders are already using AI-powered scoring. With TurnKey Lender that grants 30-second credit decisioning.

What Are the Plans of the Lenders Who Aren’t Capitalizing on Digital Yet?

71.4% say that they are going to pursue both web and mobile apps in their digitalization efforts. The remaining responders are going after either web or mobile to start.

Out of these lenders, 28.5% are going to develop a system internally and the vast majority of 71.43% will partner with a ready-made digital software vendor. 

Digital Lending KPIs

And the last set of data we would like to share are the key performance metrics tracked by creditors in the digital age.  We’ve received a lot of custom responses that lenders use for measuring and streamlining their digital lending operations.  Here they are in order of popularity:

  • Non-performing loans/assets 
  • Bad debt ratio 
  • Default rates
  • Speed of credit decisioning 
  • Percent of digital vs traditional lending 
  • Transaction volume 
  • Disbursement rate
  • Share of online service
  • Share of digital loan decision 
  • Accuracy of digital loan decisions
  • Borrower’s lifetime value
  • Profit stability
  • Portfolio performance
  • Customer journey & feedback 
  • Delinquency rate  
  • Risk/loss rate

Final Thoughts on Digitalization

Even though since the December 2019 Singapore FinTech Festival, the lending industry has rapidly undergone some of the most significant and momentous changes of recent history. Nonetheless, the speed of lending digitalization in our new reality is nothing but growing faster.

Lending automation as of December 2019 was already an extremely popular approach in crediting and what we gleaned from surveying over 40 decision-makers in the credit industry is that the vast majority of financial institutions will invest heavily in R&D and digitalization. As the leading provider of Unified Lending Management solutions, TurnKey Lender is proud to be on the edge of intelligent lending processes automation.  Schedule a call with our team for a demo tailored to your business today.


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