A Contemporary Outlook on LendingJune 1, 2018
Money lending has been one of the oldest professions in human civilization. Typically, the loaned amount would attract an amount of interest, and the borrower would need to pay back the principal amount along with accrued interest, either in a single repayment or in several instalments. As financial institutions like banks began to design loans for different needs, the processes and paperwork began to get more streamlined, with standard qualifying criteria and repayment terms. Thereafter, we progressed to the concept of credit rating, a standardized score to ascertain the repayment capacity of the borrower. These scores were commonly available to all banks and any lender could easily assess the quality of a borrower from his credit score. Today lending has progressed beyond the earlier paradigm and has begun to incorporate several other aspects. Let us take a look at some of them.
Both aspects of banking – loans and deposits – are today done more from the comfort of one’s home than by going to the bank physically. Internet banking makes all this possible with the use of a laptop or computer, or even on a smartphone. Specifically, with respect to loans, there are so many platforms now available, which make the work of the bank as well as the borrower much easier. May it be credit assessment of borrowers to the vetting of loan documents, every aspect of lending has begun getting automated. This allows the entire lending process to get completed much faster than earlier. There are apps now available which do the work of integrating lending technologies in one place. This can help the borrower keep track of his entire loan lifecycle, from the first intervention (at the time of comparing options) to the end (by tracking repayment schedules and finally generating closure certificates). From the point of view of the lender, useful analytics is now possible by using integrated data which can give an overview of all running and repaid loans for the same borrower.
Banks have progressed beyond the traditional types of customers and are now targeting financial inclusion with alternative lending. Financial inclusion refers to the process of bringing into the banking mainstream those segments of society who might not have the usual documents that the banking system generally asks of its customers. The size of the deposits and loans for this segment might be much smaller than those that banks and their customers are used to. Many banks are actually opting to set up credit franchisees in the hinterland instead of setting up branches. The persons becoming credit franchisees of banks in a particular region are usually people who have stayed in that region for a long time and know the creditworthiness (or lack of it) of people in that region. They are responsible for both credit assessment of borrowers as well as the repayment of the loans.
Making It Personal
As mentioned earlier, a surprisingly large number of people need nothing more than an internet connection on a smartphone to carry out all their banking transactions. The only thing that needs to be taken care of is the security of the phone so that the transactions are safely carried out. When a loan is to be taken, there are apps which compare different loans available and then also proceed to initiate the loan application to the particular bank chosen. This helps in personifying the digital lending experience.
This is what lending has evolved to today, and we eagerly await even more advances which will revolutionize the way banks lend to clients. Technology plays a dominant role in personalizing the user experience and most banks today have a virtual assistant that helps customers wade through the lending process and provide timely assistance and guidance.