The Finance Industry continues to shift trends from conventional product and service delivery to digital structures. Consequently, financial institutions are "jumping ships' and incorporating new technology into their operations to stay relevant and serve their customers better.
Meanwhile, the current state of the global economy, compacted by inflation and war, witnesses increased demand for loans and credit, disturbing the credit market's stability as well. Hence, financial institutions have modified their modus-operandi and adopted digital-first strategies such as digital lending.
In 2022, the digital lending landscape saw a lot of critical changes, and 2023 anticipates even more disruptions with new products, partners, and customers. The famous Benjamin Franklin quote, "If you fail to plan, you are planning to fail", holds. The growing concerns about inflation and a fluctuating global economy call for strategic preparation, planning, and actions for success other than just struggling to stay afloat.
This article highlights nine strategies to boost the efficiency of your digital lending system and succeed this year.
How Should You Up Your Game in 2023?
Digital lending balances providing a wholesome customer experience and running an efficient business while yielding good returns. As a digital lender, applying innovative digital strategies and technology to make growth-driving decisions is the best way to achieve this.
Several lending institutions have "gone digital", but here's how you can get up your game and transform your lending business in 2023:
Invest in Robust IT Infrastructure.
Several borrowers, especially small businesses and low-income individuals were denied credit access due to a lack of credit history and the high operational costs of small loans. Finally, however, fintech came into the picture. It introduced AI-backed, time-efficient, and cost-efficient processes through various IT infrastructures and APIs that have been the backbone of digital lending in recent years.
Digital lenders receive many credit applications from multiple channels and use a lot of new tech in their operations. As a result, you will require an important, integrated, and comprehensive IT infrastructure to handle the workload and ensure seamless transactions. As a digital lender in 2023, you cannot afford to skip investing in robust IT infrastructure.
Practice Customer Segmentation.
Customer understanding and segmentation increase customer satisfaction by helping you make the right digital lending products and services accessible to the right customers in the right manner. Using customer insights from analyzing data, digital lenders can distinguish borrowers into specific groups based on consumer behavior, demographics, transaction history, online activity, etc., and create algorithms that inform the lending system and diminish non-performing portfolios.
Increase Customer Engagement
A large population of customers remains digitally underserved, and several prefer physical interaction with lenders due to mistrust of digital channels due to the lack of human interaction.
This year, establish a working strategy for engaging your customers and improving customer service, especially in finding their pain points and solving their difficulties with accessing your services/products. Having a feedback system, chatbots, and online presence are working strategies you can employ to improve your customer engagement.
Apply Agile Methodology to Your Workflow
Credit workflows affect many operations in digital lending. An agile approach to your digital lending process helps you effectively manage your workflow to get more work done faster.
A simple, well-defined, precise, suitable, and adaptable agile workflow will increase operational efficiency. You should also digitize your overall workflow to facilitate decision-making and loan processing and extend this approach to all aspects of your business.
Automate Credit Scoring and other Processes
Digital lending enables the automation of several operations through artificial intelligence(AI) and machine learning (ML). Leverage AI and ML for data analysis, interpretation, prediction, and decision-making in 2023.
For example, AI algorithms allow you to automatically assess a borrower's credit risk from historical data and score them quickly. Besides automated credit scoring, AI and machine learning models prove effective for predictive analysis, risk management, and compliance, improving efficiency and enhancing overall customer experience.
Update Your Data and Risk Rating Models
Lending institutions collect and save a lot of data, such as transaction records and customer ID data. However, it is essential to identify datasets and data sources relevant to your decisions and regularly update your database to endure access to real-time information. Additionally, reevaluate your credit-risk rating models regularly to reflect changes in market or customer realities.
Use Alternative Data
Lending and data travel hand-in-hand; hence, digitized data is unsurprisingly an inevitable tool in digital lending. Lenders utilize various financial data to inform their decisions; however, in 2023, they require more unconventional data sources to effectively carry out operations like credit risk assessment.
Using alternative data to inform credit decisions reduces your dependence on traditional data and provides you with a 360-degree, real-time view of your customers and market.
It provides customer insights from telecommunication data, psychometrics, open banking data, e-transactions, social media, etc., in addition to Credit Reference Bureaus and formal credit history. Therefore, you can assess a borrower's creditworthiness and determine their ability to repay beyond credit history.
Alternative data also helps you assess and serve underserved customers with credit at minimal risk. Combined with data analytics, it enables you to refine large amounts of data, focus on favorable, low-risk loan applications, create better products and services, and provide better customer experiences.
Onboard A Digital Loan Origination System
A loan origination system helps you facilitate credit application decision-making and enhance your portfolio while managing and mitigating risk. The technology integrates with your existing digital channels and algorithms frictionlessly.
It enables you to automate lending operations end-to-end, giving your customers a more effortless, faster, and more streamlined experience while applying for and obtaining credit.
Moreover, it ensures regulatory compliance, provides access to digital tools for seamless operations, and increases credit access. Hence, adopting the technology is an effective digital lending strategy this year.
Adopt Embedded Lending
Embedded lending enables you to provide credit financing options to consumers through merchant (non-finance) websites. Partner with a third-party fintech provider and integrate APIs with its embedded lending platform. This will expand your customer base and help you serve a different range of consumers.
In 2023, the lending industry enters a pivotal span for boosting its prospects against all odds of economic uncertainty. Therefore, strategic planning and action become critical for digital lenders to ensure success in the growing market and adapt to its changes, trends, and challenges.