The contemporary lending platforms have started exploiting Artificial Intelligence and Machine Learning technologies to produce valuable insights from additional data sources. Analyzing digital footprint, for example, has helped bring in a comprehensive borrowers' evaluation. The removal of manual touchpoints also accelerated the time needed to make credit decisions.

Through supporting small businesses with finance, these platforms help create jobs and help the country's overall financial growth and, most significantly, introduce new companies that succeed with good business models. These digital platforms also provide versatility around making along with being more open compared to traditional financial systems. Such new-age platforms, which serve as a springboard to build a good credit history particularly for underserved borrowers, can further enable them in the future to access credit from other outlets.

What is a digital lending platform?

Consumers expect seamless interactions in all aspects of their lives in the progressive digital world. A digital lending platform simplifies the process of securing a mortgage, home loan, or savings account, allowing borrowers to close more loans at a lower cost while building stronger, long-term customer relationships. Over the past years, digital lending has been a growing global trend. It may initially have been rejected as a 'buzzword' without a commonly defined concept, but all business concerns have been overcome by the bold foray of Fintech startups and tech giants into the grey space.

Why digital lending?

Increasing customer expectations and standards for alternative methods of borrowing money have opened up new markets. And businesses, as a differentiating factor, have always been prompt in understanding the importance of customer experience. They take the opportunity to improve efficiencies, cut costs, and grow proactively.

The explosion into the financial markets of tech-savvy Millennials and Generation Z customers has caused a fundamental shift in consumer perceptions and behaviors. Instant gratification is their secret, and digital activities like online food ordering, cab booking, and grocery/essential shopping have reinforced this approach only. They have a stronger emotional connection with brands like Apple, Uber, Amazon, and Google that have pioneered in new-age technology. Both digital interactions seek to emulate the perceived ease of use and satisfaction of digital-only products (e.g. Dropbox).

Marketplace Lending Platforms

P2P platforms use advanced credit modeling and lending underwriting, integrating several data sets (beyond credit scores) to reach a wide range of potential buyers, benefiting even those lenders who are rejected by the traditional bank credit scoring system. P2P platforms provide automated loan selection features for borrowers, where investors may set predefined conditions for loans they intend to buy.

There is also the opportunity to invest up to 100% of capital. The key strength of the P2P platform lies in its simplified process of lending through an online interface. While many of the platform's features favor lenders, the consumer also benefits from the platform's widespread acceptance. Key features include a quick online review of interest rates by presenting some basic income, credit score, etc. information on the P2P website, real-time notifications of the approval and financing process, after approval, the applicant can quickly access the percentage of the loan that has been funded.

Digital lending solutions for small to mid-sized businesses

• The gap

For decades, the disparity in structured finance availability has troubled the small and medium-sized businesses. Notwithstanding attempts to increase bank credit flow to this section, much of the funding still comes from an informal source. Fintech companies could start making a dent in this unmet need for funding at a time when more businesses join the formal sector. A key change that will encourage these businesses to obtain structured loans is the transfer of MSMEs from the informal sector to the formal one. This change is driven by the Goods and Services Tax and digital payment options are available.

• Risk analytics and digital lending adoption

A risk analytics software can deliver the big data functionality needed, tailored to the specific operational climate. Modular platforms help to mix and match resources according to needs. Besides, strategic partnerships are used to collect data from a variety of sources, adding value to the analytics processes by integrating a wider range of data sets into the decision-making process.

While customer-based apps and services may seem to be the most urgent elements of an online program, positive customer experience can't be generated without back-end systems that help make prompt decisions. This is where tools for risk analysis come into play and can help the bank successfully launch a digital lending initiative.

• Streamlines decision making

The biggest attraction is the time to decision making. The average decision-making time for small business loans is 3 to 5 weeks. The average cash time is nearly three months. For a small business that requires a cash injection in a hurry, this waiting period is a real issue. Also, lenders will want to reduce this time gap at the same time. It will not only be cheaper, but it will also increase the number of loans they can make, leading to higher profits.
For example, mortgage owners could benefit from the digital analysis that not only provides them with a faster response but also develops a more tailor-made package to meet their needs. Insurance companies can also use digital loans to streamline procedures, save money, and provide more tailored policies. Financial services can track clients and provide real-time guidance that is more accurate, personalized and instant.

To sum up

The digital lending platform market, as an emerging industry, paves the way for building trust, transparency and changes the way alternate financial services are viewed worldwide. Ultimately, the ease and seamless experience of using digital lending platforms and their ability to fill the credit gap for underserved individuals and corporate borrowers leads the industry to exponential growth.

Nevertheless, these networks will never erase conventional FIs from the ecosystem of lending. Instead, they will partner in building a balanced and inclusive lending infrastructure and collaborate with the incumbent financial institutions. The synergy between the traditional institutions' tech-enabled platforms, data-based insights, and scale will open up intriguing avenues for expanding credit reach to a wide range of underserved segments in the future.