The digital lending industry has substantially contributed to the expansion of the world’s economic conditions. The surge in the digital economy and technological progress have usually fueled this. According to MarketsAndMarkets, the digital lending market is expected to increase from its estimated value of USD 10.7 billion in 2021 to USD 20.5 billion with a forecasted growth rate of 13.8% from 2022 to 2026. The digital lending market is expected to grow due to the widespread use of smartphones, increasing digitalization, the demand for better customer experiences, government efforts to regulate digital lending, and improved visibility and options for borrowers and lenders. Additionally, the rising adoption of digital lending platforms by MSMEs and the surge in digital lending during the pandemic are key drivers. Modern tech-savvy borrowers favor a digital lending platform because of its convenience and adaptability. This usually happens through the popularity of micro-credit and Buy Now Pay Later (BNPL) services.
In this blog, we will learn more about digital lending software, its functions, and some top platforms.
What is Digital Lending?
Digital lending is conducted through online platforms or mobile apps that streamline the loan process Digital lending platforms have changed the loan process journeys by eliminating traditional requirements like manual creditworthiness checks and extensive paperwork. Instead, they leverage automated credit assessment and digital data capture, significantly speeding up the approval process, greater accessibility and convenience for borrowers while enhancing efficiency for lenders.
A digital lending solution enables financial institutions to boost loan books, and employee productivity per loan to provide speedier service. It also acts as a platform for borrowing money quickly. Digital lending platforms allow borrowers to apply for any commercial or consumer loan product online, regardless of location.
How Does Digital Lending Function?
The traditional lending process is very complex and lengthy. It usually involves substantial paperwork and face-to-face interactions with banks or Non-banking Financial Companies (NBFCs). The tedious and lengthy process makes it difficult for individuals who require funds immediately.
A digital lending system aims to streamline this entire process by making it completely online and automated. Here is how it functions:
Step 1. Application Process
The application process is completely online. Borrowers need to fill out and submit an online form. This often involves providing details like their employment type, source of income, and other relevant details. Borrowers also have to provide minimal paperwork to allow background checks and verification so that they get loans on time.
Step 2. Approval
The next stage is approval, where automated advanced algorithms and machine learning models help quickly analyze the borrower or applicant’s data. These algorithms evaluate risk and creditworthiness. Banks and institutions often use digital lending software specializing in these algorithms. They help decide whether the specific applicant qualifies for a loan and what loan amounts and interest rates should be offered.
Step 3. Disbursal Process
The disbursal process is a crucial part of a digital lending platform, which is more streamlined than traditional lending. In this process, the funds are disbursed to borrowers only after a few days. The process is efficient and offers borrowers timely access to the necessary funds. The best part is that the loan repayment system is also entirely online, where the payments are managed through digital lending software. A few other platforms offer flexible repayment options to accommodate the needs of the borrowers.
Digital Lending Platforms: Examples
The conventional lending process is filled with gaps and inefficiencies, making it difficult for consumers to get a loan and institutions to process the loans. Hence, introducing a digital lending platform is necessary for the current lending environment to stay ahead of the curve.
For instance, many apps provide instant loan services to young working professionals and college students. Borrowers can apply for small loans often sent through instant credit to a third-party wallet or bank account.
The applicants’ borrowing limit will increase over time based on multiple factors, including timely loan repayments. One can repay the debt in up to 3 months with a nominal interest charge. These entities don’t ask their customers to submit physical documents or visit the branch for instant personal loans. They can easily apply for the loan online on their mobile app.
Several Indian app-based consumer lending platforms have partnered with RBI-registered NBFCs to offer salaried and self-employed individuals instant personal loans. These companies aim to address the concerns of India’s vast underbanked population. For this reason, they are already transforming from a micro-lending platform to providing a full suite of offerings.
This includes offering gold savings and insurance services, among others. Borrowers can get loans from small loans for a shorter duration but the interest rates are on a much higher side – around 3-5x of collateral and even non-collateral based loans.
Difference Between Traditional Lending and Digital Lending
Both traditional lending and digital lending systems aim to offer funds to borrowers on time. However, their working methods are completely different, as reflected in their respective functionalities, which are tabulated below.
| Area of Difference | Traditional Lending | Digital Lending |
|---|---|---|
| Application Process | In-person and paper-based application process | Entirely streamlined, online and user-friendly application process |
| Customer Interaction | Personal or face-to-face | Digital, with minimal human interaction |
| Technology Used | Manual processes with some digital tools | Digital processes with the help of AI, ML, and analytics |
| Documentation | Extensive paperwork is required | Minimal documentation process |
| Interest Rates | Fixed interest rates | More dynamic rates |
| Disbursement Time | Disbursement takes several days and weeks | Loan applications are processed within hours |
| Accessibility | Limited by branch locations and working hours | Anywhere with internet access, 24/7 |
| Flexibility | Less flexible terms and policies | More flexible terms and policies |
| Loan Products | Standardized products with less flexibility | More customization options |
| Repayment Options | Fixed monthly installments | Flexible EMI repayment choices |
| Loan Tenure | Offers loans ranging from short-term to long-term tenure | Offers shorter tenures of fewer months |
| Customer Base | Those with established credit histories | Those with thin credit files |
Advantages of Digital Lending
A digital lending platform brings numerous benefits. For instance, digital processes expedite KYC compliance, which leads to quicker customer onboarding and loan approvals. E-stamping and e-signatures also help reduce paperwork significantly, saving time and resources for lenders and borrowers. On the other hand, NACH automates repayments to ensure timely collections and reduce the risk of loan defaults. Below are some of the additional benefits of digital lending.
1. Convenience and Accessibility
Digital lending platforms offer borrowers the convenience of accessing funds and applying for loans from the comfort of their homes. This accessibility has expanded lending services’ reach significantly and attracted a wider pool of borrowers. Traditional lending processes often involve lengthy approval procedures. Digital lending platforms, on the other hand, use advanced algorithms and data analytics to assess all kinds of loan applications quickly. This swift processing on the part of the platforms leads to faster loan approvals and disbursals and enhances the appeal of digital lending.
2. Personalized offerings
Digital lending systems also utilize sophisticated data analytics and machine learning to evaluate borrower creditworthiness. This enables precise risk assessment and personalized lending, leading to more accurate risk assessment and customized lending decisions. By leveraging advanced analytical tools, digital lending enhances the efficiency and accuracy of the lending process.
3. Speed and Efficiency
Automated digital lending processes help expedite loan applications, approval, and disbursements. This agility helps reduce waiting times for borrowers and enhances their experience across platforms. Digital lending always transcends geographical barriers, which enables borrowers in remote or underserved areas to access credit opportunities they might not have gotten with traditional lenders.
4. Real-Time Tracking
Through digital lending platforms, borrowers can monitor their respective loan application status, repayment progress, and outstanding balances. This further enhances transparency and streamlines financial management across banks and institutions.
Business Models of Digital Lending
Various digital lending business models drive success across banks and other financial institutions. The most popular ones include the following.
- Loan marketplaces help connect borrowers with lenders, originate loans, and even collect origination fees.
- Online and mobile lending platforms market digital lending as their primary offering through mobile or web apps.
- Peer-to-peer lending, or P2P lenders, serve as an intermediary in the loan-giving process and the interactions between borrowers and lenders.
- Non-banking financial institutions do supply chain financing to lend money to retailers and wholesalers.
- A line of credit enables the borrowers to draw from and repay the available cash. It can have a minimum maturity date of two months and a maximum of 36 months.
- SME lending assists small businesses in resolving issues arising from several loan applications. These issues include moving, hiring, marketing, and introducing new products.
About Newgen – Top Digital Lending Platforms to Automate the Lending Process
Suppose you want to automate the lending process swiftly without involving a time-consuming and comprehensive development process. In that case, Newgen can help your organization with a low-code digital lending solution.
Newgen’s Digital Lending platform provides end-to-end lending solutions, including:
- Lead management solution
- Loan origination
- Loan collection
- Lending analytics
- Enterprise content management solution
- Loan management solution
The is built on a low-code platform, making it easier for institutions to implement the solution in their existing environment. The solution can be customized with minimal coding to meet your business needs and workflows.
It is a cloud-based solution that can automate and contextualize the entire digital lending process. The solution features the following advanced technologies: low-code automation, robotic process automation, AI/ML, and process intelligence and orchestration. Whether you offer retail, SME, or any other loans, provides a centralized interface where you can process all lending transactions through a single platform.
Summing Up!
Digital lending platforms are here to stay, and there is enough evidence to prove it. As every process has switched to digital mode, the lending process has also witnessed a transformation to digital mediums. The best part is that borrowers or lenders do not need much effort to find digital lending software or systems that improve their work.
If you want to work with such efficient digital systems, the best platform for you would be NewGen’s Digital Lending Software. It is a leading loan origination software that caters to all loan types. Our strategic collaboration will help you add flexibility to your enterprise by implementing loan origination solutions. Take a demo today and see how easy it is to deploy your own digital lending system!
Frequently Asked Questions
- Why is digital lending the future?
Digital lending has transformed banking by making the loan process faster, more accessible, and more efficient. It also reduces costs and improves customer experience by introducing innovative financial products that reduce the hassle. That is why it won’t be wrong to call digital lending the future of banking and finances.
- How does a digital loan work?
Borrowers can apply, get approved, and receive funds through websites or mobile apps. On the other hand, lenders transfer funds directly to the borrower’s bank account, and borrowers repay the loans online.
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