This year, innovations in the digital lending space have grabbed the mainstream. These six LendTech trends have stood out and are here for the long run.
Today's digital lending landscape is experiencing a dramatic shift– a wave of change accelerated by the pandemic and expected to keep pace into the foreseeable future. Each year brings innovations aimed at fulfilling increasing consumer demands.
Modern consumers expect to interact with their lending and other financial services in new, more convenient ways– anywhere and anytime.
According to analysts, 2022 will be an inflection point for the financial market that will significantly change the landscape. This year's trends will likely become market trademarks for years to come, and lending and other financial institutions must stay on top.
As consumers demand digital, personalized, quick services, new insights and methodologies will boost the industry for several years. Banks throughout the MENAT region and worldwide are making changes to their physical branch structures as face-to-face client demands have fallen drastically.
With more consumers reaching out through mobile apps, using chat functions, and searching for an omnichannel digital experience, the pace at which consumer expectations have changed has accelerated considerably over the last two years.
The six trends we will go through today are succeeding at addressing these challenges.
What’s happening with LendTech lately
2022 has been an excellent year for the LendTech sector. The first and most popular lending technology trend is an increase in end-to-end digitization as more clients search for digital-first platforms.
FinTech companies need AI/ML-based technology to help with faster credit approval, quicker lending services, real-time processing, and self-service options such as sophisticated chatbots to create flawless consumer experiences.
Thus, financial institutions must keep focusing on end-to-end digitization and facilitating an omnichannel experience for their consumers.
There is also the widespread use of digital lending software like unified dashboards, intelligence and analytics, digital consumer profiles, online applications, and increasingly collaborative business models with more partnerships between traditional banks and FinTech firms.
Aside from the pressure of adjusting to modern consumer demands, other defining pressures include the need to constantly improve the consumer experience, manage increasing staff attrition rates, decrease overall ownership costs and stay ahead of the complex and ever-changing regulatory environment.
Digital lending is here to stay
In case you’re unfamiliar, lending technology, or LendTech, is an ecosystem where non-traditional firms use technology to offer people easier and more affordable credit access.
These credit providers combine digitally native services with speed, convenience, and improved consumer experiences to simplify the lending processes.
Digital lending came into the mainstream a few years ago, with small businesses and entrepreneurs looking for nontraditional sources of funds to scale their endeavors. And while development, in the beginning, was solid, it was a little on the slower side of things. That has changed drastically since then.
With digital lending becoming the norm for entrepreneurs, businesses, and even larger companies, it is essential for funds to become easier accessible.
Innovative digital lending platforms like The Social Loan Company offer transparency, real-time evaluation, and reliability that undoubtedly tilt the scales in our partners’ favor.
From a consumer perspective, digital lending removes the need to sign tons of paper, wait for a long time, or visit a physical branch. Instead, innovative digital lending services or apps today (say CASHe in India) allow applying for a loan from anywhere, anytime.
1. Artificial intelligence (AI), machine learning (ML), and Data Analytics are potent drivers of innovation
AI, ML, and data analytics are at the forefront of digital lending innovation, and their role will keep growing in the following years. Banks are using these technologies to improve lending processes for both lending institutions' and consumers' convenience.
60% of banks use AI tools to perform predictive analytics and chatbots to assist with basic service requests, recommendations, and decision engines. Overall, the banking industry is well-positioned to use AI, which will add $1 trillion in value annually.
LendTech platforms improve efficiency by advancing lending procedures and reducing closing time and data entry by automating these processes entirely on the back end through complex coding and third-party integrations (APIs).
Realistically speaking, consumers like avoiding lengthy and tiresome loan procedures.
LendTech platforms must focus on use cases that reduce requirements and approval times. Organizations are increasingly moving beyond a process-based delivery model to an experience-based delivery model, focusing more on simple and to-the-point experiences and avoiding unnecessary procedures.
Today, consumers can apply for loans with minimal information. The platform can instantly approve or recommend multiple relevant offers, perform a risk analysis, and set installment plans without human intervention.
Through artificial intelligence (AI), LendTech platforms can provide data-driven leadership and use cases that are simple and practical, which will be a leading indicator of the success of the modern revolution.
2. Buy now, pay later (BNPL) services are on the rise
A buy now, pay later (BNPL) service is a type of short-term loan that lets you pay for goods and services in the future.
Most BNPL services don't charge interest, making it popular financing. With point-of-sale (PoS) installment loans, clients pay a certain amount down on a purchase and then the rest later. Experts anticipate increased interest in the BNPL sector, and numerous FinTech giants globally are already following this trend.
For example, Amazon is partnering with Affirm to perform BNPL by splitting purchases of $50 or more into smaller monthly installments.
A study from C+R Research (shown in the graph below) shows that 71% of people have made more purchases online during the pandemic, with 51% done through a BNPL service. Approximately 60% of people have used a BNPL service at one point during their shopping.
Source: C+R Research
3. End-to-End digitization is improving the consumer experience
An end-to-end digitization platform customized to each user segment offers consumers the expected experience.
LendTech companies need to target end-to-end digitization that allows scalability, focusing on a satisfying consumer experience, a paperless journey, and AI-driven foundations.
This strategy reduces the workload of loan agents and underwriters and provides consumers with effortless loan application processes.
4. API in lending
Using application programming interfaces (APIs), lending platforms can connect in real-time with third parties to open up new opportunities. As a result, consumers receive a flexible, customized experience without developing functionality from scratch.
APIs help lenders improve processing speed by automating workflows for onboarding customers, analyzing credit history, detecting suspicious activities, validating and confirming, generating documents and e-signatures, and much more.
To remain competitive, lenders must focus on building a complete experience by leveraging available data and services from open APIs. While assessing new systems, lenders should focus on understanding the API framework of potential prospect solutions and the network they support.
5. Robust cloud infrastructure is helping innovations reach new levels
Keeping up with these trends requires a highly scalable, flexible, and secure infrastructure.
Cloud computing has made it possible for LendTech platforms to combine these innovations, allowing them to scale based on demand on a flexible infrastructure that is secure, cost-effective, fully managed, and always compliant.
Using the cloud lets companies focus on business growth since hosting platforms manage maintenance, backups, recoveries, and software patches.
The journey to the cloud does not have to be a big “now or never" kind of move. Modest achievements based on business priorities will yield significant benefits.
6. Peer-to-peer (P2P) as an alternative lending form
Several alternative lending types are available today, including credit unions, microlenders, marketplace lending, and peer-to-peer (P2P) lending.
Probably the most popular, P2P lending is a type of alternative lending technology involving three parties: consumers, investors, and third-party platforms. The third-party platform provides the basis for the interaction to happen.
This way, an investor can lend money directly to a consumer or borrower without the involvement of a bank. Peer-to-peer lending platforms reduce expenses since they do not offer loans themselves and use more affordable solutions.
P2P lending serves both consumers and businesses. Increasing numbers of small and medium-sized companies are driving demand for this type of lending.
For example, the UK-based P2P lending marketplace Capitalise matches business owners with investors who can provide the funds needed to keep scaling. Such lending marketplaces act as a bridge between consumers and individual or institutional investors, providing another lending trend that is here to stay.
Bottom line: What the future holds for LendTech
Financial institutions should be willing to make bold moves to stay in the loop with the new trends to press boundaries and provide their consumers with a smooth and affordable digital lending experience.
To handle the challenges of 2022 and beyond, companies need innovative lending technology, or LendTech, to partner with, build, and grow with them, constantly improving the consumer experience.
TSLC is an innovative credit-led neo-banking platform that uses a unique AI/ML-driven lending technology to revolutionize the flow of money to benefit everyone. We have developed a cutting-edge alternative credit scoring system that allows affordable access, with approvals needing less than 30 mins.
Using our proprietary cloud-based LendTech, we aim to make financial inclusion a reality for 100 million people across 10+ markets within ten years. We aim to achieve this through our unique LendTech and transformative partnerships with industry-leading traditional banks.
Our ultimate goal is to use our proprietary lendtech platform to give everyone fair and affordable access to credit, thus helping them chase their dreams, unravel their potential, and write their own stories.