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  • Eduardo Marin - The Fintech Harbor

The Digital Lending Landscape and its transformation



Digital Lending is still a big step for financial institutions, where smart data, data science and AI are making a huge difference in increasing market share and growth, customer retention and a faster online lending cycle.


First, we need to understand what constitutes digital lending. It is required that a Financial Institution goes through a comprehensive organizational and transformation by using tools to create an integrated digital product that offers an improves customer experience. From the borrower's perspective, a well-designed digital product offers quicker access to credit or pre-evaluation of credit, reduced paperwork and documentation, convenient payment methods for disbursement and repayment, and a more tailor made interaction with all type of financial service providers (FSP).


Understanding the previously explained process and taking in consideration that the traditional lending process lacks of attractiveness in terms of borrower experience. Digital technology is constantly transforming the consumer loan industry by providing users and borrowers with more simplicity, efficiency, and transparency.


Therefore, the lending process refers to the sequence of activities a FSP performs to provide credit from acquiring and onboarding a customer, evaluating the customer (creditworthiness) and disbursing the loan, receiving repayments and following up on past-due loans. Throughout the lending process, the FSP builds customer engagement and retention (CRM actions) to client needs and preferences.


There are 4 Key drives to make the digital lending process a successful experience, for the lender and most likely for the borrower, following these 4 pillars:

  1. Customer Acquisition (Lead Origination): In order to go digital, FSP’s should are starting to acquire customers using a mix of digital marketing tools and digital onboarding channels, enhanced by strategically designed physical touchpoints and referrals.

  2. Approval and Analytics: Digital lenders use digital data from different business functions and build data marts to make quicker, automated, and more accurate underwriting decisions using both conventional and alternative data sources and advanced algorithms and analytics to quickly and remotely ‘score’ potential clients and make credit decisions. 3rd parties here play an important role such as Bank scrappers or readers and thanks to new open banking solutions

  3. Disbursement and Repayment: Digital lenders transfer loans and collect payments through digital channels, such as bank accounts, debit cards, SEPA DD, or mobile wallets integrated with a PSP. These improve operational efficiency and reduce fraud by providing a clear identification and traceability trail. Instant disbursement providing customers funds in a matter of seconds. Even though third party integration is important for hassle-free lending, still FSPs’ fears of ‘losing their client’. This can be mitigated by offering a compelling digital lending value proposition that the partner alone cannot replicate.

  4. Collections: FSP’s aspiring to emerge as a digital lender should start leveraging data and algorithms to support their collections process. FSP’s or lender, on the whole, should deploy delinquency scorecards that track customer behavior and propose customized recovery strategies. Digital lenders should start creating short educational videos that explain key messages on repayment, where debt collection agents can show to customers on their phones or tablets to avoid delinquencies.


In conclusion, as each of the above described stages of the digital lending process involves customer engagement. Lenders are spending huge amount of euros to understand the customer’s behavior and preferences, quickly address their problems or concerns, and create solutions that make sense to the customer on a personal basis, this will drive revenue and profitability (CLV).


Don´t Forget ! In order to ensure a long-lasting, high-quality relationship between the FSP and the client, it is important to protect the client through responsible lending practices, so make sure you give simple explanations of the terms and conditions during acquisition, explaining the consequences of not making repayments on time when disbursing the loan, and ensuring accessibility of channels to address customer complaints.

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