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Lock Step with Change - Lending in 2020

Tushar Chitra
Vice President, Product Strategy & Marketing, Oracle Financial Services

Lending Disrupted

It’s 2020 and today’s consumer is thinking  VR, AI, smart homes and self-driving cars. What were once technology trends are now a reality. However, the lending industry is yet to catch up on these technological advancements. Mired in traditional systems, siloed data, and manual processes the lending business is bogged down by operational inefficiencies and poor customer experiences.  In an age where the financial services industry is shaped by Cloud Computing, Machine Learning, Artificial Intelligence, and so on, lenders must brace for disruption, adopt emerging technologies and take advantage of new opportunities.

The Digital Push

Today’s digital culture has pushed lenders to find new tools to respond to customer demands. For example, Consumers looking for a loan have more options and a better understanding of market prices and the value of goods today than they did a decade ago. This is made possible by online research or price comparisons apps. Today they have access to information they need in a matter of minutes. Borrowers are put off by large amounts of paperwork and lengthy processes of loan approval and disbursal.  Lenders, on the other hand, are caught between responding to customer demand for instant gratification and putting in place strict authentication frameworks.

The only way to balance these contrasting requirements would be for lenders to use new-age technology platforms that can help speed up the loan disbursal process while maintaining stringent standards of verification. According to Research and Markets, the global digital lending platform market size is expected to grow from USD 5.1 billion in 2018 to USD 12.1 billion by 2023.

The digital transformation of customer’s credit journey is a top priority for lenders. While loan applications can be submitted with a swipe of a finger on mobile phones, forward-thinking organizations are now digitizing their underwriting processes. Premium calculations can be automated with AI tools and machine learning. Digitizing the underlying process of the loan lifecycle will ensure more accurate and faster services.

Personalization is another catchphrase today, data-driven lending solutions can help lenders understand when a customer needs a loan and send them specific communication at the right time. The process of creating hyper-personalized loans, where a customer is pre-qualified for a single or multiple loan products, also allows lenders to learn when to sell to a customer and when to do nothing.

Cloud Implementation 

Financial institutions find cloud alluring and intimidating at the same time. The aversion to moving to the cloud inspires the approach of bite-size change, step by step. Lenders can start with non-customer facing solutions. This way, they can try to move out of the status quo while not derailing the day job. A scalable technology platform can be achieved on the cloud with lowered costs and higher volumes. Crucial steps of the customer lifecycle, such as originations, can be automated with cloud, making the processing far more efficient.

Cloud is far easier to integrate with already existing systems and can minimize the integration hassles. The data spread across siloes can be easily pulled together to make intelligent business decisions and render better customer experience. Cloud can potentially remove redundancies and provide easy access to information, leading to better customer experience.

Augmented Reality

Augmented reality is increasing its presence in the real world. We’ve seen the viral effects of games like Pokemon Go! The lending experience, too, can also be transformed by augmented reality.  It allows lenders to take their transformation beyond digital and offer high-speed and frictionless services.

For example, Oracle’s AR solution for auto lending allows lenders to point the camera of their mobile phones towards the number plate of the car, and all of the customer information will pop up on the mobile screen, including the loan status, lease renewal dates, etc.  This feature saves precious time and effort of searching through the database for customer information. The customer has a seamless experience when he comes in for a renewing the lease or any other requirement. There is no long wait, data is accurate, and it only takes a few minutes. The augmented reality feature can also improve the collections process. Information on delinquent customers is fed to toll booths or other agencies and when a car passes through those areas. The whereabouts of the vehicle are immediately sent to the collections office, and action can be taken.

Augmented reality allows users to interact and manipulate data and improve several pressing issues in the lending business: enhanced self-service capabilities, better authentication systems, better decision making, and lesser paper-based systems.

Internet of Things

Simple defined IoT is extending the powers of the internet to a wide range of devices. It is an ever-growing network of physical objects that utilize embedded technology to communicate and interact with the external environment via the internet1. Acting on the insights derived from tangible assets can make the lending and leasing process frictionless for the customer.  IoT can be harnessed to monitor the health of a leased asset. Wear and tear of an asset can be determined by capturing usage time. Lending and leasing firms can also make automated adjustments to prices or leasing terms of equipment based on the health of the asset. Discounts and fines can be imposed instantly for either meeting or not meeting pre-agreed terms or conditions of the loan or leased assets. Delinquency rates can also be managed by taking control of the equipment if the loan/lease is not paid in time. 

End-to-End Lending Systems

Most often, lending systems lack integration capabilities, forcing lenders to manage multiple originations, billing, servicing, and collections platforms— reducing their efficiency and leading to poor customer experience. A true end-to-end solution can help both finance professionals, and the IT teams quickly respond to changing business needs and improve the accuracy, consistency, and speed of credit decisions. An integrated platform can automate and standardize workflows, which makes lending easy and efficient for all. The system should also include predefined finance processes that reflect global best practices.  Once implemented end-to end systems can be leveraged to further innovation by collaborating with third parties and actively participating in the larger ecosystem.

Conclusion

While embracing change and transforming the business can seem formidable, lenders are sure to see their efforts rewarded with considerable competitive advantages and business growth. Faster credit decisions, lower costs, and better-compliance will eventually translate to increased profitability for the organization.

To learn more about how banks can lock step with change in a digital lending environment, feel free to message me to explore more or have a conversation.

Sources: 1 - Webopedia

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