CXO Bytes

Understanding Digital Transformation in Lending

digital transformation

Digital transformation is a complex process that delivers successful and sustainable change, enabling businesses to offer a unique and personalized customer experience, float innovative, customer-centric products quickly and easily. It, thus, changes how enterprises work and operate in the market, creating long-term opportunities for partners equipped to take customers on this digital journey.

As per a report by International Data Corporation (IDC), digital transformation spending is expected to reach $3.4 trillion by 2026 at a compound annual growth rate (CAGR) of 16.3%. It is also anticipated that the size of the global digital transformation market will grow at a CAGR of 21.1%, to be worth $1,548.9 billion in 2027. Digital transformation has changed business models and opened new revenue streams by altering ways of delivering products, customer acquisition, creating value, and making profits. Businesses can further use data insights extracted from analytics to make informed decisions and stay competitive.

In the banking and financial services sector, digital lending has emerged as a critical opportunity for competitive differentiation. Borrowers want faster credit services and certainty that funds will be available as and when needed. Hence, lending is an area that is ripe for banks to reconsider and retool how they cater to their customers. A smooth and seamless lending service is central to a bank’s profitability and growth. As new-age companies disrupt access to credit, digital lending will be the core foundation for the industry to attract and retain customers.


Why Consider Digital Transformation in Lending?

Today’s lending is ecosystem driven, creating a need for seamless, constant connectivity and round-the-clock harnessing of information across various parties to enable round-the-clock banking. Digital transformation provides an integrated interlinking of business-related information, data collection and the associated analytics, helping lenders increase revenue and drive significant operational efficiencies.

Digital lending allows financial institutions to operate at a faster speed in a safe and error-free manner. It helps obtain a 360-degree view of customer engagement and provides a single view across organizations and products. Digital lending capability enables lenders to reduce turnaround time (TAT), go paperless and provide instant acknowledgement and resolution of customer queries.

With easy configurability of business and credit policies, lenders can incorporate automated credit checks, bank statement analysis and customer identity verifications on the go, facilitating complex credit decisioning. It strengthens the risk management capabilities of lenders using risk analysis techniques such as early warning signal detectors for Non-Performing Assets (NPA) across the lending ecosystem. Digital transformation delivers customized products via channels of preference, allowing toggle between channels and seamless connectivity to continue from where one left off, considering the demands of a multi-generational customer base.


Building the Right Technology Platform

As per a recent report by Research and Markets, India’s Digital Lending Platform Market is expected to reach USD 2507.55 million by 2027, growing at a CAGR of 27.95%. The benefits that digital lending platforms offer, such as smooth loan processing, easy compliance with rules and regulations, faster decision-making, and improved business efficiency, will boost market expansion. To stay competitive, lending organizations must invest in an integrated, secure, easily maintainable, and an agile platform that ultimately helps reduce total cost of ownership (TCO), provide scalability, and 24/7 error-free availability.

The following steps can ensure a successful transition to digital lending:

Open systems (API first approach) – Thinking API before designing any system functionality is the only way to build deep technical tie-ups with third-party players. Leveraging APIs and cloud services enable banks to provide more complex and highly targeted services which are faster and cheaper to employ.

Leveraging data Understanding the availability and leveraging that data could take lending organizations a long way. Digitization enables institutions with multiple source points to obtain critical data.

Efficiency – A digital lending platform that reduces overhead by 30-50% would mean more money, lesser costs, more time saved, and more growth opportunities. The single-platform concept improves efficiency by eliminating operational barriers such as loan staff training, IT support, and vendor administration.

Reducing risks – Ready exchange of authenticated data reduces financial risks as critical data flows seamlessly between systems with advanced security and encryptions.

Business availability – Being available 24*7 for customers and third-party partners provides a relevant competitive advantage and helps reduce TAT considerably.

Leveraging partner ecosystem – Building deep relationships with ecosystem partners and jointly influencing business interactions puts organizations ahead of their counterparts.

Straight-through processing (STP) – STP method is used by banks and financial institutions to streamline their operations and reduce the number of manual processes involved in completing a transaction. It automates the entire process, from the initial request for a transaction to its settlement. STP design blends with the lender’s policies and existing systems, thereby enhancing workflow by transferring information across systems, enabling effective decision making.


Creating a win-win situation – Digital for Customers, Digital for Lenders

A successful digital lending experience is the one that delivers a truly end-to-end seamless multichannel experience for both the customer and the lender. Organizations need to perform a strong internal assessment alongside an able technology partner to choose the right starting point to digital transformation in lending. There is a need to develop full digital capabilities, front-to-back, across all lines of business and all products. Institutions need a radically simplified infrastructure which automates, standardizes & streamlines procedures & processes for improved efficiencies. It is a gradual path from traditional to semi-digital to fully digital as the entire ecosystem would need to enhance digital capabilities. Digital lending, if adopted seamlessly, can help deliver business value incrementally without putting too much at stake.


(The author is Mr. Brajesh Khandelwal, Vice President (Global P&L Head FinnOne Neo), at Nucleus Software and the views expressed in this article are his own)

Leave a Response