WHY DIGITAL LENDING WORKS WELL WITH NEW AGE BANKING
Aug 18, 2017 | Mike Singh
Digital lending and digital loans are quickly changing the lending scenario across the world. With its powerful potential to offer financial inclusion and provide a solution to the massive operational challenges related to the traditional offline lending models, it has become a hot topic of discussion of several rising FinTech startup companies and banks.
The traditional model of loans from banks has some key inefficiencies that make consumers and small businesses wary of engaging – interest rates are not individualized, the costs of underwriting loans are high, loan decisions can take months, and small entrepreneurs, in particular, have been shut out of the process. These inadequacies have led digital lenders to grow and come up with solutions by developing online marketplaces that use complex algorithms to match borrowers with investors according to each party's specifications. Through this effective digital approach and model, the digital lending industry or most commonly known as “Peer-to-Peer” lending is seeing significant growth, especially in developed countries with strong financial markets.
Here are a few reasons why the concept of digital lending and digital loans is creating a better banking experience for consumers:
FASTER LOAN PROCESSING TIME
Digital Lending platform offers a drastically reduced loan processing time. Before it exists, a loan application usually took 2-3 weeks to process. Now, customers can apply in real time to get actual cash approved and credited to their accounts as fast as the next banking day.
The usual borrowers from Digital Lending Platforms are the “unbanked” – these are often individuals seeking to refinance debt at reasonable rates or small businesses that have trouble getting low-value loans from traditional institutions. Reaching to the unbanked population will vastly increase their economic contribution while improving their standard of living.
It is crucial to educate new borrowers about their financial responsibilities towards loans. Financial literacy is still a key element in the roll out of digital lending for it encourages responsible financial behavior and engenders the necessary confidence to take charge of one’s own financial future.