In almost every setting, automation helps stakeholders save time, money, or both. COVID-19 gave rise to the rapid automation of services in various sectors. The lending sector was not left behind. Lending business owners now know that digitizing their businesses has excellent benefits.
Lending businesses stand to gain more from digital transformation than older lending procedures. Legacy procedures require more human involvement and paperwork than digitized processes. Digitization of lending businesses can look like using loan servicing software and going paperless for records. It may also involve email or text updates to consumers rather than direct mail.
Digitization provides lending businesses with greater profits. This is mainly because it allows for faster loan approvals. To reap the benefits of digital transformation, lending businesses must adapt to the digital age. Otherwise, they risk missing out and watching from the sidelines. So, owners must understand what digitizing their lending businesses entails.
A deeper look into the digitization of a lending business
To most people, digitization means replacing humans with computers. That is far from the truth in the digitization of lending businesses. Digital transformation involves assigning more menial tasks to computers. In doing so, humans have more time to deal with the more challenging processes.
As a result, you will be able to provide your customers with a better experience. So, digitizing your business does not mean total automation and the loss of human interaction. Instead, digitization focuses on people. And it allows lending businesses to have a better relationship with customers.
Customers prefer having simpler processes automated to be self-service transactions. Examples are money transfers and paying bills. Digital transformation allows for that. Customers would rather have human interactions for more complicated transactions, such as mortgage refinancing.
From a borrower’s perspective
The legacy lending process is often burdensome for the borrower. Most borrowers are entrepreneurs who got access to the right financial tips. Take, for example, a business that needs new equipment to keep running. Purchasing new equipment is a capital-intensive undertaking. So, the borrower may attempt to get a loan from a traditional bank.
But, getting a loan takes a long time because of lengthy paperwork and many trips to the bank. Plus, the borrower is not assured of total funding. So, the borrower may turn to other sources for faster loans with higher interest rates.
Digitizing lending businesses can turn complex borrowing processes into seamless interactions. With digitization, the business owner can go through a faster digital loan application procedure.
They can then get the loan at a favorable rate.
It’s a win for both parties. The business will keep running with the new equipment. At the same time, the lending business retains a client.
The type of lending affects digitization
It may seem like digitizing a lending business is a one-size-fits-all process. But, digital transformation is different across products and industries. For example, a lending business may offer:
- Personal loans
- Retail and corporate loans
- SME loans
- Mortgage-backed loans
Each of the above products has specific challenges and requirements. Digital transformation can deal with these needs and challenges. Digitization can lead to the quick approval of personal loans. But mortgage loans are more complicated, and support will take longer.
So, it would be best to decide which products you will provide. Doing so will help you choose the best tool to digitize your business.
Ways to digitize your lending business
An excellent way to carry out digitization is to welcome its value while ensuring that you can manage the changes. Getting digital transformation consulting can help. There is more than one way to conduct digital transformation.
End-to-end digital transformation
An end-to-end digital transformation involves implementing changes across the board but with gradual changes. Such a complete change may seem challenging. So, you may prefer to carry out the transformation bit by bit. But carrying out digital transformation in bits has its challenges.
You risk losing sight of the main goal when issues arise. End-to-end digital transformation ensures the change is significant such that it motivates stakeholders.
Testing out complicated procedures
A significant concern about digitization has to do with approving loans. Before approving and disbursing loans, institutions conduct a risk assessment. The process is long and expensive because it involves going through many criteria. But it’s necessary.
Trusting a digital lending platform to complete the complex risk assessment process may be challenging. To ensure the effectiveness of an automated tool, you can test it first. You can use prior human-made decisions to conduct the test. Or, you can choose the right tool for your lending business by observing what your competitors use.
You can steer a portion of loan applicants to the automated platform and let the rest use the standard lending method. For example, you can direct ten percent of loan applicants to the new method. As the digital transformation becomes more and more successful, you can move more clients to the platform. It is preferable to start with the less complicated applicants.
Advantages of digitizing your lending business
Digitally transforming your lending business can improve customers’ experience. With digitization, application for a loan, assessment, and approval happens faster than older processes. Faster processes create satisfied customers and thus better customer relationships. Plus, satisfied customers are likely to recommend others to your lending business.
Currently, many millennials turn to neobanks for fast and straightforward digital lending. By digitizing your lending business, you can get into this ready market. Digital transformation makes your lending business available across almost all devices. Customers will have the chance to access your services across different devices securely.
Easier access by more people could mean more significant margins. Digitization may include the integration of analytics, making market analysis and customer tracking more efficient. Ultimately, an investigation will help you better allocate resources and grow your business.
Human nature is prone to resisting change. Implementing change becomes even more challenging when it involves lending businesses, which are highly regulated. But, it would help if you welcomed digitization since your business’s future may rely on it.