Digital Lending Process refers to the series of activities that banks design to move customers along the digital lending journey: from the application, onboarding, underwriting, to disbursement and repayment. It’s a complex system of steps that requires careful planning and investment of technologies.
1. CUSTOMER ACQUISITION
Banks can attract new customers to their digital lending products by mixing digital marketing tools and digital onboarding channels. Verifying customers can be left to a technology called eKYC solution.
Digital marketing tools are SMSs, SEO, online banners, social media advertisements. These tools are more about strategy. Banks should have the right experts in place, who can diversify digital marketing efforts but at an optimal cost.
Digital onboarding tools can range from the traditional SMS blasts to more up-to-date channels such as web app, mobile platforms, or AI chatbots.
Verifying customers’ identity has been essential to the acquisition, especially for a type of service full of risks as lending. Today’s banks are using the eKYC (electronic Know-your-Customer) solution to automate identity verification. It eliminates the need for the customer to come to a physical location to submit documents for verification. Most eKYC technologies also allow access to government’s or private sector’s records, which can be valuable when a bank tries to enrich its customer data.
All these digital channels increase business efficiency and improve customer experience. Moreover, they provide a rich source of data that banks can use to score customers or offer personalized products. Digital channels are also more cost-effective when it comes to advertisement, where customers can easily find product information.
This does not mean that banks should ditch their physical channels. Having a large network of branches and call centers can only be an advantage. For many customers, lending is more trusted when they can speak to real humans. Physical marketing is still indispensable as it helps to build trust in the first stage of digital lending. This is particularly true for underbanked customers.
2. APPROVAL & ANALYTICS
You should understand that digital lending is mostly about being able to access more data, and use that data to make quicker, automated, and more accurate underwriting decisions. Today, banks can access ever more sources of data—from the internal sales team, social channels, partners, credit bureau, event the government. With advanced algorithms and analytics, banks can quickly score clients and automatically make credit decisions.
Banks are augmenting their own knowledge about a specific borrower with bureau data, social media information, and digital transactions (e.g. supplier payments, e-commerce payments, mobile money payments, etc.) to better understand individual behavior and provide access for ‘thin file’ customers that may have previously been rejected.
If spending months on writing new algorithms seems like a bad idea, some technologies can help banks with approval & analytics. Loan Origination System (LOS) is a type of lending software that automatically pull customers’ data from relevant sources, score their credit, and make credit decisions while needing very little human intervention.
Whether it’s the advanced algorithms or a ready-built solution, the data is fed to predict customers’ capacity and willingness to repay. The outcome is clear: decisions are made in seconds, turn-around time is faster, and customer experience is improved.
3. DISBURSEMENT & REPAYMENT
In digital lending, banks disburse loans and also collect repayments remotely through digital channels. They are the banks’ online accounts and mobile banking apps. Partners’ channels such as mobile wallets or e-commerce accounts also count as effective channels for disbursing and collecting loans.
These cashless channels prove to improve operational efficiency by reducing needless paperwork. In addition, they provide a clear audit trail, which can support banks in preventing fraud.
Repayment in digital lending comes back through these same digital channels, sometimes by auto-debiting the account.
A mobile banking app, for example, can serve as a two-way channel for digital lending. Customers can apply for loans there, get disbursed when they are qualified, and repay when due—all that in one place.
Banks wanting to have a full view of each customer’s lending journey can also consider Loan Management System. It helps banks proactively identify, classify, and manage loans through configurable repayments plans and periods.
Banks leverage data and algorithms to support their collections process.
Some deploy innovative technologies to track customer behavior and propose customized recovery strategies. Loan Collection System is a type of software that can help banks streamline disbursement & repayment. It offers strategies designed for loan recovery, restructuring, and collections. With notification engines, warning systems, and advanced features such as skip tracing and geo-fencing, Loan Collection System ensures that no cases will fall through the cracks.
Much like any type of loan, digital loans require that delinquent customers are blacklisted and lose access to future credit – which can be a powerful motivator for them to repay. However, it’s recommended that banks offer informative content to help customers understand the long-lasting financial consequence of a negative credit score and also to minimize their collection efforts. One tactic is to build different content forms, such as blogs, infographics, or videos that explain how loans work. The content is then distributed to banks’ digital channels—the blogs, social media, or a dedicated knowledge hub in the mobile app.
5. CUSTOMER ENGAGEMENT
Customer engagement is not the last step in the digital lending process. Rather, it happens throughout the entire loan cycle. It’s because good customer engagement acts as a motivator that nudges customers to move along the digital lending journey.
An intuitive, convenient, and personalized customer experience can be built by leveraging digital channels and customer data. This is a two-way communication, involving both both inbound (borrower-to-lender) and outbound (lender-to-customer).
Lenders send personalized messages, reminders, and product offers based on their behavior. At the same time, customers are empowered to easily access and manage their accounts, raise questions, or report issues or complaints. Channels can range from simple SMS, call-center support, to the use of self-service online portals, chatbots, and in-app messaging.
Even more advanced is the use of lending analytics, a type of ML-enabled solution that analyzed customers’ data and provides personalized messages and the product information based on predefined parameters.
>At the heart of customer engagement is the desire to understand a customer’s behavior and preferences to quickly address their problems or concerns, and create solutions that make sense to the customer on a personal basis.
Today’s market for lending has been completely changed. Bank’s traditional model of lending is losing ground. And a new breed of digital challenger has emerged, already eating up this lucrative market share. To keep up, banks have no way other than becoming a true digital lender. There are now 3 models of the digital lending models that banks can adopt, read more here: Three strategies for banks to adopt Digital Lending.