When it comes to lending, we always associate it with banks. It makes sense because a big part of a bank’s income comes from loan interest. What about digital lending or the future of banking? We immediately think of Fintechs. The buzzword Fintechs have been around for a few years and these companies have progressed tremendously. Digital lending has since gained popularity among Fintechs as it empowers them to thrive and achieve business sustainability.

It is an open secret that many Fintechs find it hard to be sustainable, especially digital-only banks. According to The Edge Markets, it states that the COVID-19 crisis has been a strain on the nascent business models of digital-only — or virtual banks. The tightening of funding and low market share had caused many of them to fold or rethink their strategies and business models. Despite the challenges posed by the pandemic, the market believes that the emergence of Fintechs is still on the rise.

The Call of Fintechs to bring financial inclusion

The rise and growth of Fintechs are important factors in bringing advanced digital solutions that are flexible, secure, and personal to the society. Furthermore, they also greatly broadened access to financial services, and at the same time, also significantly reduced the cost of many financial services.

Easy access to credit and financing have been the biggest challenge for most countries, particularly for small businesses and sole proprietors. They are often excluded from mainstream credit channels because the stakes are too high. Yet, improving the Small and Medium-sized Enterprises (SME) financial inclusion can help increase economic diversification, growth, and job creation. Of course, it could also help increase the effectiveness of fiscal and monetary policy which could also contribute to the country’s financial stability. According to an IMF publication – Financial Inclusion of Small and Medium-sized Enterprises (SME) in the Middle East and Central Asia states that the annual economic growth could, in some cases, be boosted by up to 1% in the Middle East and Central Asia regions, potentially leading to about 16 million new jobs by 2025 in these regions.

In addition to SME financial inclusion, financial inclusion also builds the concept of savings among the poor. You see, the lack of access to basic financial services can create crippling financial problems for people destabilising the economy of many countries. Hence, achieving financial inclusion has become more crucial than ever before. This is because it enables and empowers the people and communities to make better financial decisions, reducing income inequality and poverty, and ultimately, drive economic growth.

Digital lending as a solution

Digital lending provides the solution to extend easy access to credit. By eliminating the cumbersome paperwork and ambiguous practices both for B2B and B2C, digital lending is able to streamline and simplify the entire lending process. In simple terms, digital lending is the process of offering loans online. With the entire process of the loan lifecycle happening online, it removes the need to visit a bank physically. Besides, it also enhances the credit filing, automates the application approval, and funds disbursement with little wait. Having new processes, new strategies, and new technologies enables lenders to reach traditionally underserved people while securing their own interests. Furthermore, digital lending offerings open up a new source of revenue income for Fintechs.

It is not always necessary for countries to nurture and encourage startups to build digital lending solutions and offerings from scratch. According to the IMF Blog, “The Promise of Fintech: Financial Inclusion in the Post COVID-19 Era”, it states that digital payments services are evolving into digital lending in most countries. Companies that once were offering digital payment services are now using their accumulated consumer data to develop alternative ways to determine creditworthiness. “Marketplace lending, which uses digital platforms to directly connect lenders to borrowers, doubled in value from 2015 to 2017,” notes IMF Blog. “It appears to be growing in other parts of the world, such as in Kenya and India.”

New opportunities with digital lending

Why is digital lending so attractive? It’s because customers love the idea of digital lending as it makes their lives easier, more convenient, and more enjoyable! Customers nowadays want everything to be fast, fast, and fast. Digital lending has the capabilities to provide the instant gratification customers are looking for when it comes to applying for loans. Furthermore, from a business perspective, it also offers great perks. For example, lower operating expenses and faster turnaround time with automation, lower delinquency due to better decision-making from AI and machine learning, improved understanding of customers behaviour, and enhanced customer engagement through personalised products.

Fintechs have caught the vision of tomorrow’s banking. To make finance more accessible and effortless, they have changed the lending landscape by opening up new opportunities through digital lending to do more with less.

1. Increase revenues and reduce costs
   • Faster loan approvals and release will reduce the “time to yes” from weeks to minutes.
   • Increased automation and strong backend technology enable staff to be redeployed from reviewing loan applications to work that adds more value.
   • From the customer’s point of view, digital lending also provides easy access platforms such as mobile apps and websites, eliminating the need to travel to bank branches.
2. Provide alternative lending type
   • For example, peer-to-peer consumer and business lending. Peer-to-peer lenders do not require deposits from their borrowers, but rather give individuals a chance to earn interest by lending to others.
3. Make better decisions with alternate data
   • Leveraging artificial intelligence, machine learning, and big data analytics for alternative credit scoring. Alternate data points such as consumer’s spending patterns, online behaviour, telecom product usage, consumption trends can be used to determine creditworthiness and help make faster and more accurate decisions.
4. Enhance personalisation with smart technology
   • Advanced machine learning and AI can offer personalised services such as providing insights into a customer’s very particular circumstances, and offer a bespoke proposition tailored to that customer in its cost, terms, penalties, and bonuses.

Digital lending is redefining the dynamics of the credit market globally. However, Fintechs are not the only people who are interested in digital lending. Banks are also transforming to digitising their products and services. Digital lending opens up new opportunities for banks to become part of a growing ecosystem. By driving new collaborations and business models, banks can now leverage the new technologies Fintechs are providing. For instance, Amazon and Goldman Sachs’ Marcus collaborates to offer loans to small businesses that sell on Amazon’s US-based platform.

The lines of lending are blurring as digital lending starts to mature in the financial services industry. We see big tech companies and even smaller startups are jumping on the bandwagon, leveling up the game with something new, different, and creative. With digital lending, you are able to expand the access to credit, making finance more accessible.

If you are interested to know more about digital lending, reach out to us at contact@juristech.net

About JurisTech

JurisTech (Juris Technologies) is a leading Malaysian-based fintech company, specialising in enterprise-class software solutions for banks, financial institutions, and telecommunications companies in Malaysia, Southeast Asia, and beyond.

Check out our end-to-end digital banking platform, Juris Spectrum that covers everything from digital engagement, to lending and deposits, to digital collections, and artificial intelligence.

For enterprise solutions, Juris Origination is a loan, and financing origination system that simplifies the approval process and dramatically decreases time to market. Juris Origination can be coupled with our artificial intelligence (AI) engine, Juris Mindcraft, to provide alternate credit scoring for greater financial inclusion.