Online communication has opened the way for a new service model in financial services, but raised concerns for customers and providers. How has digital loaning evolved, and what advantages do innovations in digital lending offer to both sides?
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As mobile devices and the internet have been transforming every area of business, the banking industry is no exception. Most financial institutions already have well-integrated online services in their customers’ offer, providing account accessibility and monitoring, alongside with traditional services. Online communication has also been made easier and customers’ queries are promptly addressed digitally. Conversely, digital loaning has been slower to impress. Customers may see a digital-only loaning process as a hindrance to the safety and security of the information they provide, lacking a reassuring human dimension and a margin for assessing, comparing and rethinking. Banks may fear that a completely automated loaning process could be too rigid to correctly address the needs of the borrower, whilst not preventing nor confining the risks associated with such operations.
Personally, I firmly believe in the multiple advantages of digital loaning, for the benefit of financial institutions and consumers:
1. Lower costs – lower risks
Digitalizing loaning processes means to elaborate on templates, best practices and existing customer data to automate the decision-making process surrounding loaning operations. For the customers, having a 24/7 access to an online portal from a desktop or mobile devices means the time needed to meet a consultant can be saved for other important activities. On the bank’s side, the need to impose extra-hours on staff will evidently decrease. More loans can thus be asked and granted automatically, with a diminished personnel investment and a consequent decrease of the costs related to the management and treatment of the request. Risk is also calculated. Because the process is foreseeable, reliable and fully automated, all existing data and parameters are taken into account, thus excluding the elements of human judgment and personnel training from the picture. The decision-making machine will make the right decision every time and can integrate customer behavior and reimbursement data immediately upon recollection.
For many consumers, not knowing whether their bank would approve their loan hinders commercial and private decisions. Also, it imposes third-party conditions in agreements that are potentially deal-breakers. For the banks, approving a loan request is a long and elaborate process: from the moment a request is made, then evaluated and finally granted to the actual liquidation of the capital, days, if not weeks, can pass by, while different services, in different branches and with different priorities (customer satisfaction, risk assessment, liquid availability, etc.) are involved. With digital loaning, the entire process is streamlined, automated and immediate. Customers digitally ask and digitally receive an answer, immediately, safely and definitively, while all the assessments a bank shall perform are combined in a single, automated formula, which considers all the relevant factors in a time-sensitive manner.
Automated processes allow for variety and diversity. Banks offering digital loans can rely on existing credit products and customer data to evaluate the needs of their customers and offer tailored-made products to meet those needs. Combining the best market conditions in a given time, banks can address specific needs and develop quickly and easily new loan products to meet their customers’ demands. Flexibility is guaranteed and so is the satisfaction of the customer.
4. Targeted solutions
With fully automated loans, customers can be reached in a unique, targeted way. While using the data customers have agreed to share on their devices with their banks, credit institutions can anticipate their needs and eventually meet them. This is the end of untargeted advertising, broad scale offers, and large proposals for the vast public. Each customer is unique and feels that way the moment its bank suggests it a loan for a house to a newlywed couple, a help to an agricultural family business facing difficult times because of harsh weather conditions, an investment loan to a start-up seeking for opportunities. The offer is adjusted and tailor-made; the demand is met before it arises.
5. Customer relations
Through a digital loaning system, more customers can be served faster. No more waiting in line, no more hoping to find that specific consultant, no more excuses and postponements. Clients can ask and immediately and instantly get a response at any time of the day or night from the comfort of their homes or offices. Digital loaning facilitates the growth of customer relations. Bank employees are free from time-consuming data entry and form processing and can concentrate on fewer quality activities, such as building customer relationships.
6. Competitive advantage
When it comes to online services, banks not only compete against their usual physical competitors, but also with the multitude of already fully digitalized suppliers. It is enough to search the web for online loaning to realize the diversity and seemingly accessible variety of loaning opportunities. By offering digital and mobile loans, a bank can offer its customers something ahead of times, yet safe and secure, built on the mutual trust relation customers nourish with their financial institution.
Though digitization is not a method of preservation of documentary heritage, the process must be accompanied by intellectual property rights management, quality control and evaluation at the end, when these essential steps are ensured, we believe that the digitalization is the natural way to go.