Digital Loan Origination: Transforming the Credit Underwriting

Pune (Maharashtra) [India], May 25 (ANI/BusinessWire India): The lending market is witnessing a paradigm shift towards digitalization across the globe. A new category of digital lenders has emerged who are leveraging modern technologies to make the day-to-day life of the consumers easy and frictionless.
According to a BCG report published in 2020, over $1 trillion of retail loans will be disbursed digitally in next 5 years, and the digital footprint of the consumers will increase to 75 per cent from 50 per cent by 2023 in India.
Evolution of the lending landscape
In India, the lending landscape has changed drastically in the last decade. To keep up with the evolving consumer demands, the industry has transformed their entire lending process which includes a quicker, more stable and streamlined borrowing experience to the customers. The major factors which have led to a spur in growth of digital lenders are - increase in number of tech-savvy users, increased digital connectivity, and increased innovation.
As per TransUnion CIBIL Market insights, the Indian fintech players have disbursed more than twice the amount to the millennials and Gen Z consumers under the age of 30, as compared to the traditional banks, in 2020. Fintechs have digitalized a lot of processes, but most importantly they changed the face of underwriting.
Transforming the credit underwriting through technology
Traditionally, for lenders, underwriting a consumer was an extensive, time-consuming and complicated process as it involved manual underwriting and paperwork. As digital lenders are armed with automation/technology, this process has undergone transformation as well. With the shift of loan origination from manual to digital, the lending system has become quicker, smarter, and convenient not only for the lenders but also for the borrowers. Let us find out in what all ways has digital sourcing revamped underwriting -
Reduction in TAT (Turnaround Time)- In today's era, having a fast and efficient Personal loan process is very important for consumers. Traditionally, the lenders had to undertake grueling manual verification processes wherein they usually took several working days to finish the same. As fintech firms are armed with innovative technology, the entire verification process can be done digitally through eKYC, Video KYC, eSigning, etc. therefore, reducing the turnaround time by almost 10x.
Accuracy in Decision Making- Traditionally, the credit score was considered as the baseline to underwrite or assess the individual's creditworthiness. But Fintechs work differently, they usually make the decision basis the in-house proprietary algorithms to assess an applicant. These algorithms help in collectively assessing multiple parameters of one's credit profile like FOIR, CIBIL score, loans taken, etc. Social score algorithms are used by credit managers to further strengthen the accuracy of their decision. Use of technology helps them get deeper insights around lifestyle, spending behavior, employment stability, etc. of the applicant. Therefore, decision-making is not just faster, but smarter.
Enhance scalability: The conventional bankers used to carry out physical verification processes before lending. As the processes are now armed with robust technology, the lenders can now verify the consumers' profiles regardless of their geographical locations by using tools like geotagging, eKYC and other online verification processes, thus helping them unlock the untapped credit market and scale.
Increased Inclusion: As per the conventional lenders, the credit was only extended to those who used to have a good credit score. But what if a borrower applies for a loan for the first time and does not have sufficient score? Traditional lenders used to reject their applications. However, digital lenders take into account not just credit score but various other factors such as job stability, income stability, etc. Thus, with the entry of digital lenders, first-time borrowers enjoy easy access to credit when they need it the most.
Conclusion
Digital sourcing, data led processes and the right use of technology have helped reduce human intervention making the processes more accountable. While digital lenders have not only helped remove the limitations in the underwriting process, but they have also added new dimensions to cater to the primary objective of providing credit access to the ones in need. With such rapid advancements in the lending space, digital lenders are certain to change the face of lending in the years to come.
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