Digital transformation has brought significant changes to the lending landscape, providing borrowers with easier access to credit, faster loan approvals, and lower costs. Moreover, the pandemic has accelerated the adoption of digital lending. In response to the epidemic, several lenders digitized face-to-face operations, such as mortgage applications, e-verification of income and assets, drive-by and automated appraisals, and hybrid closings.
This reduced expenses, increased margins, and illustrated that lenders are incentivized to respond to changing customers’ needs. It’s also a wise approach, given that customer demand for digital mortgage experiences has skyrocketed since the pandemic.
According to a survey by the National Bureau of Economic Research, there was a 6% increase in the use of online lenders in the US during the pandemic. This surge in online lending was likely due to several factors, including the closure of traditional lending firms and the increased need for access to credit because of the economic downturn caused by the pandemic.
However, some challenges still need to be addressed to ensure that everyone benefits from these advances.
Digital Disconnects in Lending
• The average loan processing time remains two months.
According to a survey by McKinsey & Company, borrowers are willing to pay higher interest rates for faster loan processing times. They want faster, more convenient service, transparency, control, and prompt information. Full-scale digital transformation is non-negotiable in the face of competitive pressure to operate profitably in a crowded marketplace and technically competent non-bank lenders. For most, the next stage is to rebuild the back office and focus on removing the biggest impediments to growth.
• Siloed Working
The legacy infrastructure underpins the newly digitalized customer-facing processes, and the systems and technology that drive mid and back-office functions need to integrate better with the solutions used. This misalignment between modernized customer-facing operations and largely manual, human-driven mid- and back-office processes can lead to inefficiencies and delays. Errors in manual back-office procedures cause multiday delays that slow down the entire origination process.
• Poor CX
Consumers are increasingly prioritizing convenience over price, and this tendency is already infecting the mortgage business. Positive word-of-mouth recommendations concerning service standards are almost as crucial to borrowers as low rates when selecting a loan. Sometimes, borrowers will penalize lenders for irregular contact, even if the loan is closed on time. To meet borrowers’ expectations across the customer journey, mortgage lenders must smooth out any flaws in the loan origination process and change to a customer-centric strategy.
A Paradigm Shift in Lending
The digital age has resulted in a fundamental shift in how financial services are provided and consumed. The transition from traditional lending to digital involves implementing digital technologies to automate lending processes, reduce costs, and improve customer experiences.
This paradigm shift has brought about several critical changes, one of the most important being the democratization of lending. Borrowers now have access to more lender options than ever before, thanks to the proliferation of online lending platforms. These platforms include crowdfunding sites and peer-to-peer lending websites. This has resulted in cheaper interest rates and costs for borrowers due to increased competition in the lending industry.
The application of digital technologies to simplify and expedite the loan process is another critical shift that has taken place. Automating the underwriting and credit scoring processes on online lending platforms through algorithms and machine learning has led to reduced expenses and a speedier approval process for loans. Borrowers can now evaluate the interest rates and terms offered by numerous lenders before making a choice, which has also contributed to improved openness in the lending industry.
Artificial intelligence (AI) is being used to automate underwriting and credit scoring, resulting in faster loan approvals and reduced costs. According to a Boston Consulting Group analysis, AI-powered underwriting and credit assessment might result in up to 10% lower default rates and up to 40% reduced underwriting expenses.
The lending industry is highly competitive, and businesses that don’t embrace digital transformation risk losing their competitive edge.
Unlocking the Power of Digital Transformation: Revolutionizing the Way We Access Credit and Transforming the Future of Lending
Faster Processing Time: Using digital technology in lending makes the process faster, and the turnaround time for loan approvals is shorter. This speed is a significant factor in customer satisfaction and retention.
Better CX: Using digital technology enables lenders to provide better customer experiences. Digital lending allows for self-service options, giving customers greater control over their lending needs.
Cost Reduction: Using digital technology in lending helps lenders save money on paper-based procedures like printing, scanning, and storing.
Accurate Risk Assessment: Digital transformation in lending enables lenders to conduct more precise risk assessments using data analytics and machine learning algorithms. This improves the accuracy of lending decisions, reduces the risk of default, and helps lenders maintain a healthy loan portfolio.
Increased Accessibility: Digital lending makes credit more accessible to underserved and unbanked communities. Using digital technology, lenders can reach out to these communities and provide them with the capital they require to expand their businesses or meet their financial objectives.
Adapting to a New Landscape
Digital transformation in lending has its challenges. Here are some of the major difficulties lenders face when implementing digital transformation that can be easily overcome.
Data Security Concerns: Digital lending transformation involves using sensitive customer data. Lenders need to take extra precautions to ensure the security of this data.
Integration with Legacy Systems: Many lenders have legacy systems that must be compatible with modern digital technologies. Integrating these systems with new digital platforms can be challenging but not daunting enough.
Regulatory Compliance: Lenders must comply with the regulatory frameworks when implementing digital transformation initiatives. Compliance requirements can be complex and time-consuming but easily achievable.
The Road Ahead for Lending Organizations
Digital lending is an evolving space and provides a tremendous opportunity for fintechs to make further inroads. Due to the use of digital technology, the lending business has seen a significant upheaval in recent years. We find new age fintech players to be primarily focused on personal loans, including Buy Now, Pay Later (BNPL) business loans and supply chain financing.
Organizations willing to make these investments today can enjoy the benefits of being early movers in the future. Millennials and Gen Z are digital natives and have a natural penchant for digital purchases. Unsurprisingly, fintechs have greater traction among Gen Z and Millennials. The share of these digital natives in the addressable market will increase over the next decade. This can put fintech organizations in an advantageous position.
Digital transformation is essential for the lending industry to remain competitive and provide a better customer experience. While there are challenges to implementing digital transformation in lending, the benefits far outweigh the risks. By embracing digital transformation, lenders can streamline their operations, reduce costs, improve customer experiences, and provide access to credit to underserved communities.
Bridging The Gap: What’s Next?
Tavant’s lending products and platforms transform lenders into intelligent digital lending enterprises. Our mortgage suite of solutions provides flexibility and scale that helps deliver immersive digital lending journeys and seamless borrower experiences.
Touchless Lending® is an AI-powered Lending-as-a-service platform that delivers customer-centric mortgage experiences across all channels. The platform’s machine-oriented, optimized workflows engage with borrower and property data to make better decisions faster instead of relying on physical documentation and manual data entry.
This one-of-a-kind solution automates the loan production process, allowing lenders to originate mortgages quicker while reducing costs and repurchasing risks. Touchless Lending® is LOS agnostic and effortlessly integrates with existing systems, including client CRM, POS, and LOS.
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