The popularity of digital lending has been on the rise over recent years – and this trend is expected to continue. Due to globalisation as well as the massive leaps and advances in technology, more and more people are moving away from traditional lending practices and leaning towards digital lending for its numerous advantages and benefits. This article takes a closer look at the growth in popularity of digital lending and how it has risen to become an extremely powerful tool during modern times.
What is Digital Lending?
At its core, digital lending is the practice of using online technology to lend money to individuals and businesses who are in need of funds. Its origins can be traced to the 21st century, when banking and financial services decided to embrace innovation and venture out into the digital space – thus transforming the modern lending system forever.
Digital lending itself is one of the main components of the FinTech industry – which encompasses financial services that are supported by technology and innovation. The ultimate goal of FinTech companies is ultimately to enable companies, businesses as well as individuals to manage and consume financial services in a more efficient and convenient manner, by utilising technology. As such, digital lending enables banks and financial institutes a better way to improve their productivity and generate more revenue using quicker automated processes.
Traditional Lending vs. Digital Lending
Though it has been in practice for several years, the traditional lending process is an arduous one. It typically occurs when an individual or company finds themselves in a financial situation where they require more cash and decide that applying for a loan will help them out.
Once the borrower decides on a suitable bank or lending institution, the next step is to fill out a loan application form – which is done manually, usually face-to-face, and requires borrowers to go to the selected lender, obtain a form, fill in the details and also provide the required signatures. Once the completed loan application form is submitted along with copies of additional requested documents – such as NIC copies and documents from the employer – the lender then runs a thorough screening process, where the eligibility of the borrower’s loan request is checked. If everything seems to be in order, the loan application is approved and the borrower will receive the requested funds. The entire process is extremely long and it can take over a month to be finalised.
In contrast to the traditional lending process, the digital lending process is much more simple. The entire process takes place online – which means that borrowers simply need to visit the relevant lending portal (which can be a website, an app, etc.) in order to submit their loan request. The entire process takes just minutes, which saves a lot more time and hassle when compared to traditional lending.
Benefits of Digital Lending
It is evident that the benefits of digital lending outweigh those of traditional lending in numerous ways. In addition to the convenience factor, there are various other benefits that contribute to the ever-growing popularity of digital lending. Some of them are as follows:
Loan Processing Speed
The digital lending process is a much simpler one and more efficient than traditional lending, which means that loans don’t take as much time to be processed. As most borrowers are in need of cash urgently, especially in the case of emergencies, waiting time is crucial and every minute counts.
Data collected by McKinsey & Company states that on average, the “time to decision” for small business and corporate lending can take between three to five weeks, whilst the average “time to cash” can take nearly up to 3 months. Source
In today’s day and age, such a lengthy period of time is unacceptable – which is why people are turning to digital lending, where loan processing speed is considerably faster. Data from McKinsey suggests that banks and institutions that have embraced the digital-lending revolution have been able to bring down the “time to yes” down to five minutes, and the “time to cash” to less than 24 hours.
Another major benefit offered by digital lending is the minimum amount of documentation that is required, unlike with traditional lending. Once borrowers submit the required information, digital platforms are able to assess their creditworthiness in a matter of minutes – by analysing various data points and using predictive models and technology. With LoanMe, applicants simply need to provide images of their NIC, a selfie holding their NIC and a selfie holding the drivers license, in addition to the completed application form.
This is perhaps the most obvious benefit of opting for digital lending. Unlike with traditional lending, where borrowers have to make time and physically visit the lender, digital lending can take place at any time, at any place that is preferred. Not only does this eliminate the need to travel to a separate venue, it also enables customers to apply at whatever time is convenient to them. During the pandemic, this has also been the safer and more preferred choice – as it could be done from within the safety of your home – which proved to be invaluable especially during periods of lockdowns and travel restrictions.
Digital lending also provides better privacy. In many cases, borrowers like to ensure that confidentiality is maintained with regard to their loan application as this can be a sensitive topic for some. Not only can applying for a loan digitally can be done in a more discreet manner from within the confines of your home, it is also extremely safe and secure – offering unparalleled levels of privacy, unlike with traditional lending.
More Lending Options
Digital lending provides borrowers access to multiple lenders at the same time – providing a wider range of options, helping them acquire the right type of loan just for them.
The Future of Digital Lending
Digital lending can be expected to see several growth opportunities, especially amongst SMEs over the upcoming years. Due to the on-demand nature of its services and the quicker loan approval process, the popularity of digital lending is soaring.
The Digital Lending Platform Market Size Report 2021 released by Grand View Research states that the global digital lending platform market size was valued at USD 4.87 billion in 2020 and is expected to expand at a compound annual growth rate of 24.0% from 2021 to 2028. Source
Initiatives pursued by banks and financial institutions are expected to further the growth of the market, whilst the increasing level of internet penetration and smartphones will only contribute more towards its growth.