Are You Ready for Tomorrow’s Digital Lending?
Since the rise of FinTech, the world of lending has been abuzz with the power of “digital” – FinTechs positioned themselves as offering “digital only” and “neo-digital” experiences, while traditional lenders focused on adding a digital flavor to their services. Transformation, disruption and revolution have all been associated with digital. Customers welcomed these developments, expecting that their lending experiences were changing for the better. However, there isn’t a common understanding of what “digital” actually is, let alone what makes a bank truly digital. As a result, customers’ digital experiences vary from one company to the next. A lot of focus has been placed on delivering online, paperless, multi-channel, and mobile-first services. But is this what digital really means? And even if it does, what digital means now, will it remain so tomorrow? How is the digital lending of tomorrow set to evolve and what is the future that lenders need to be working towards today?
A report by S&P Global Market Intelligence projects that digital lenders across the personal, SME and student-focused segments will originate $62.84 billion in new loans in 2021, growing at a CAGR of 16.5%. According to a recent study by iResearch Consulting Group, the number of digital credit service users in China will grow from 200 million at the end of 2017 to 310 million by 2020 with the value of outstanding credit provided by online lenders increasing from RMB2.2 trillion ($331.16 billion) to RMB6.2 trillion ($933.28 billion).
The lending of future will involve the extensive usage of a wide range of technologies including Artificial Intelligence, Analytics, Chatbots, Internet of Things, Voice based interactions, Wearables, Virtual Reality, Augmented Reality, Robotics Process Automation and Distributed Ledger Technologies amongst others. Innovative lenders need to anticipate customer needs in advance and offer a trendsetting customer experience. Most of these technologies are not yet industrial-strength, and are not yet, mature enough to be deployed widely. However, they are developing fast and their day will come a lot sooner than many think.
Chatbots powered by AI could recommend personalized loan products to people seeking financial advice, help customers with their loan applications and also take care of service requests. Going further, it is possible that digital assistants such as Siri, Alexa and Google Assistant (already available on customers’ personal devices) could negotiate loans on behalf of their “owners”. And what would be on the other end of the negotiation? An AI powered bot, working autonomously on behalf of the bank. The number of customers preferring voice based search for their day to day activities is fast increasing and it is estimated that 50% of all searches will be voice searches by 2020. Banks have also started running voice banking pilot projects in different areas. Currently, the area of focus is largely restricted to authentication for enhancing security and convenience but once customers begin to trust voice assistants with their financial tasks, the scope could widen. As discussed in this article, Voice could be the next gateway to offer a seamless, personal and digital banking.
As the Internet of Things (IoT) continues to gain speed, and as people seek new ways of completing their everyday tasks remotely instead of visiting a bank branch, wearable technologies could offer promise. Banks have started taking their services to smart-watches and other use cases may follow soon. According to a Deloitte paper, banks need to position themselves to leverage this intelligence and capitalize on this opportunity by providing personalized and targeted services to their customers. The ongoing buzz around Blockchain and distributed ledger technology (DLT) has yet to result into significant use cases in lending but as per a World Bank paper, DLT could increase efficiency and lower remittance costs, and potentially improve access to finance for unbanked populations, who are currently outside the traditional financial system. Especially in mortgages, the use cases are moving ahead to see if Blockchain could be a better alternative to take over some aspects of the whole process.
Capabilities such as paperless processing, 24X7 access on internet and mobile were once considered a key aspect of digital lending. However, these are fast becoming ‘table stakes’ and customer expectations are evolving. Continuous innovation is vital. For example, rather than simply adding a digital interface to complex processes, banks need to completely redesign their processes – simplifying them, while offering a compelling customer experience. Also, customers need to be supported end-to-end, beginning from research and loan application to servicing through their preferred channels. Providing a standard digital experience is not enough – the processes need to be agile and aligned quickly based on evolving customer expectations. More and more customers today expect their financial services providers to offer personalized products and services which are specifically created to meet their needs, preferences and aspirations. This approach can help the service providers differentiate amongst the digitally enabled players. To be able to do this, lenders need to anticipate customer needs and roll out new products quickly. Making effective use of the available data to extract relevant insights and incorporating them can add tremendous value in areas such as servicing and collections.
Companies that aspire to be market leaders need to incorporate a holistic approach while building the framework for tomorrow’s lending. It should involve aligning processes, people, technology, culture and communication to the vision of customer orientated lending. The future of digital in banking may turn out to be quite different from what we perceive it to be today. New technologies will mature and new technologies will be created, all offering visionary players the opportunity to claim first mover advantage. To be able to do this tomorrow, it is essential to set the pace today. It is not rationale to expect legacy systems, created decades ago, to support this vision. But this doesn’t mean that they need to be completely replaced. Often the journey starts by incorporating advanced technology solutions that not only help offer the personalized digital experience today but can also act as the building blocks to integrate upcoming capabilities easily.