The pandemic has forced 33% of Americans to use money from savings and retirement accounts to pay rent and other expenses. About 250 million people around the world have lost their jobs due to lockdown measures. Digital lending has become a “life jacket” for the unemployed. Financial institutions have increased their use of innovation so that people and businesses could borrow money remotely. What lending technology trends await the industry in 2022?

What is digital lending?

Digital lending is the issuance of a loan using information technology. 

Digital lending starts from an online application on the bank’s website and ends with an automated loan issuance system. The latter may include several programs with the functions of an application form, document capture, electronic signature, credit analysis, loan administration, and other capabilities. 

Financial software development companies create solutions that help lenders be more productive, close more loans, and increase income from loans. 

The American Bankers Association found that in 2018, 36% of banks offered digital loans to businesses. And 82% of financial institutions used technology to issue mortgages and consumer credits. 

Banks and credit organizations need:

- consumers to apply for loans more often;

- employees to cope with a large number of tasks in a short time;

- loan incomes to grow.

The situation is such that banks have partially switched to digital technologies in services where one needs to find out the status of an application, account information, and make a credit payment. But they still attract clients in an old-fashioned way, issue loans for small and medium-sized businesses, carry out underwriting, and so on. Lending software is changing the way financial companies operate. 

The consulting company Grand View Research has determined that the digital lending platform market was worth $4.87 billion in 2020. Until 2028, it will grow by an average of 24% per year. 

Statista estimates the value of the financial services market at $26.5 trillion in 2022. 

To keep up with the industry growth, credit institutions and banks need to digitize their services. What technologies are more profitable to invest in?

Lending technology trends

Here are six technologies that will improve lending software in 2022. 

Machine learning and artificial intelligence

Today, those businesses flourish that know their customers well and understand how to apply this knowledge for development. Companies investing in AI and ML can increase revenue by 34%. 

Artificial intelligence and machine learning help in the following ways:

• They assess the solvency of the borrower. 

It is difficult to determine whether an individual or business can repay a loan. The information about the borrower is not always enough. Even if there is complete information about an individual or legal entity at hand, the bank is not immune from risks. 

Earlier, lenders used to determine the solvency of an applicant by FICO Score and income. Nowadays, organizations analyze the entire life of the client and their digital footprint. Additional information is useful for assessing people who do not have a credit history. 

Artificial intelligence and machine learning analyze alternative information about the borrower: their social media account, behavior on the Internet, education level, wallet usage data, and other information. 

Based on the information collected, AI and ML assign a rating to the client and, with an accuracy of 98%, determine whether it is possible to issue a loan to the applicant. Organizations analyze information faster and process applications through lending software. 

• They attract clients.

By analyzing customer behavior, AI and ML can predict who will need a loan in the future, what sum, and when exactly. With the help of technology, organizations get to know customers better and offer personalized service. Customers receive information about current products and offers. 

• They combat fraud.

In 2020, there were over 459,000 cases of credit card fraud. AI can prevent such incidents. An AI algorithm detects suspicious transactions and warns the bank and the user. It can also inform customers that a phishing email has arrived. These measures protect credit institutions from theft of money and loss of reputation. 

Robotic process automation (RPA)

More than 50% of banking tasks are performed manually. But in lending, the following procedures should be automated:

• credit analysis,

• loan approval,

• risk management,

• making reports,

• supervision and other operations. 

Digital lending platforms accelerate customer service (see the infographic). By registering on the platform, borrowers create profiles, so managers can see the necessary information about the applicant. No separate search and collection of information are required. The data will be stored centrally on the platform. This will speed up the processing and approval of loans. 

American Banker estimated that the use of RPA could save banks up to 70$ billion by 2025. 

Cloud computing

In the age of instant shopping and rapid delivery, consumers expect getting a loan to be just as easy, even though the provision of a loan is a more complicated procedure than the purchase of goods. Financial institutions have found a solution in cloud technologies. 

The cloud helps to store a growing amount of data without adding new computers and devices to the corporate network. Cloud-based lending software does not depend on bank paper documents. Both clients and lenders work in a common interface where it is convenient to track the status of a loan request and work activities. Client data is uploaded to the platform with the arrival of the application. Staff can view the applicant’s credit history. 

Two or more employees of the bank may be involved in the process of granting a loan. They perform different tasks at different stages. Specialists get access to information about the client depending on their role in the organization. The cloud provides access control tools so that there are no mistakes and confusion. 

With the cloud, employees of a credit institution can work outside the office. This is relevant during the pandemic when about 62% of the staff works remotely. 

Application programming interface (API)

The API connects lending applications and links them with the bank’s server:

• Onboarding APIs process registration information, the requested amount, term, and type of loan. 

• Credit underwriting APIs collect data from different resources for lenders. 

• APIs for issuing loans send information to the client about the confirmation/rejection of the application. 

• Customer profile APIs are for credit account monitoring. 

• There are also APIs for tracking fraud at the time of application and other services. 

Blockchain

Blockchain improves lending software and reduces application processing time. Individuals and businesses do not have to pay much money for registration and wait up to two months for a response from the bank. 

Financial software development companies use blockchain technology to:

• reduce application approval time without paper and manual work;

• manage loan payments;

• provide information about transactions online;

• connect consumers with private lenders;

• control loans;

• ensure the security of communication between the client and the lender. 

Biometrics

Fingerprint verification and face recognition are the main methods of biometric identity verification in lending. It is difficult for fraudsters to fake such data, so customers can be sure that personal financial information is safe. It is difficult for attackers to get a loan instead of a client. There is no way to circumvent the system by providing false information. 

Statista predicts that by 2025 the biometrics systems market will almost double compared to 2020. It will grow from $36.6 to $68.6 billion.

Benefits of digital lending

Compared to traditional lending, digital lending provides financial institutions, banks, and customers with certain benefits. Enterprises can do the following:

• They save time and money. 

Earlier, it took weeks and months to approve an application. Nowadays, the client receives an answer in an app in a minute or an hour. Customers do not have to wait long, and bank owners do not need to hire more staff to review applications and approve loans.

The LoanBuilder service uses a 5-minute assessment form. Based on the data entered, an application for a loan is automatically generated. Approved borrowers sign an online contract and receive money the next business day. 

• They determine the client’s credit rating more accurately. 

When deciding whether to issue a loan, banks rely on the credit rating of the client. Digital technologies collect as much information about the borrower as possible and more accurately determine their solvency. They help even in such situations when a person applies for a loan for the first time. 

For example, the borrowing organization provides personal information (name, email, and phone number), access to the accounting system, and the business bank account. The lending software algorithm analyzes the effectiveness of a potential client’s business in terms of sales, cash flow, financial history, etc. The system evaluates the applicant's solvency and decides whether they can be given a loan in a few minutes. 

• They become mobile.

Millennials and zoomers are used to searching for information, paying for goods, and solving financial issues using smartphones. They expect lenders to provide them with a familiar mobile experience to allow them to:

• apply for a loan anytime and anywhere;

• manage their accounts and bank accounts from smartphones;

• use a simple and intuitive interface. 

Borrowers receive money without visiting a branch. Clients hardly communicate with lenders, because all the stages of registration are automated through a mobile application, website, or self-service platforms. 

• They approve or reject loans faster. 

When the loan application process is automated, employees are more likely to decide whether to approve or reject a request. For example, the Spanish lender Caixabank approves applications in one click. Money is credited to the account 30 seconds after the borrower accepts the offer. 

• They implement new business models.

Technology partners – financial software development companies – help lenders to implement and maintain digital solutions. Their collaboration becomes long-term as IT service providers help to improve lending applications. For example, to introduce a system of short-term loans for individuals, a digital signature, identity verification through FaceID, and other technologies. 

Conclusion

Digital lending trends are emerging in response to customer requests. They will help banks and financial institutions to provide better services, such as faster application submission and approval, accurate underwriting, secure identity verification, and improved customer service. 

To compete in 2020 and further, lenders need to modernize the loan procurement lifecycle. If you see this as an important step for your business, you should invest in lending software development. A financial software development company will help you to implement relevant innovations.