Loan provision services:
One of the biggest influences of digital technology in today’s loan provisioning market is in that of digital
lending.
The three two prime aspects of a loan are its origination (whom to give loans to), documentation and
retrieval/renewal (getting the money back). Digital lending has helped the segment in all three
parameters which thereby increases the efficiency of the lending agencies.
Digital lending started off as a website that established banks created to facilitate their loan making and
distribution process online. Taking it to the next tage, digital lending has spawned into a whole new
automated platform wherein functions such as loan administration, loan distribution, selection of
guarantees, documentation, authorized due diligence, and even peer to peer lending (not covered by
banks per say) have been incorporated.
There are a lot of benefits that such digital lending provides, namely, increase in the productivity of
personnel, greater revenue for the bank/institution, quicker service, and more satisfied customer base.
So far, banks still have to catch up to the potential of digital lending. It has been found out that only 7%
of banking products are covered via the digital medium, according to research from Bain & co.
Where should the banks digitize?
Banks should attempt to digitize in 3 primary areas that of information collection, information flow and
access, and the data analysis part of the process. This could be done in many ways, for example:
creating a common ledger or database which auto updates itself whenever new information is keyed
into it, creating an electronic credit file wherein all stakeholders, including third party auditors can
review and upload documentation, automate some analysis to help make quicker decisions on whom to
sell the loan to, what to price is at etc.
A prime target group for the digital lending spectrum is the micro lending industry.
This upcoming industry in the loans provisioning market is the micro credit/ micro lending industry,
which is fueled by the upcoming peer to peer lending industry. Finding these people who require
lending services is the challenge and here is where digital can come to play. Apart from digital, social
media can also help identify such type of clients. Technology can be used to look for people who require
micro lending services and target them.
Digital technology can help to
Identify clients who find it difficult to get loans (digital database of client information)
Find customers who are rejected by traditional banking services
Help in estimating the market size for smaller loan or informal credit industry
Helps generate leads of new banking clients which are an expanding market
Scope of crypto currency in banking: (to reduce variable costs)
The biggest use of blockchain technology is in its transparency and distributed ledger, both of which are
of prime importance to the functioning processes of the banking industry (especially the loan
provisioning segment). Crypto currency and blockchain have huge scope in the banking field, but with
the Indian government not being clear on its stance and regulatory issues, it seems a slightly distant
reality. One of the prime use of crypto currencies is to reduce the variable costs. Variable costs of loan
provision services increase a lot when transferring overseas. Banks as intermediaries charge huge
commissions for exchange. If there was a use of crypto currency to instead have no intermediaries,
variable cost could be reduced.
The big assumption here is that people are willing to adopt cryptocurrency as a medium of exchange of
money. Social media can be used to ascertain whether people are ready for cryptocurrency or not.
Large companies like UPS, FedEx, Walmart, British Airways and Maersk have already adopted Blockchain
technology in operations industry. It is only a matter of time before blockchain enters the financial
services industry as well.
Technology to Reduce/predict External Environment Risk
External Environment for any company includes its competitors, the regulatory bodies, the government
and the macroeconomic condition of the economy. Changes need to be kept up with and companies
need to react to them accordingly.
The External environment risk can be reduced if alerts are set up to find out the latest before it happens.
The indicators may turn up on blogs or social media which can be scoured automatically. Leveraging such
digital technology can help predict and mitigate risks.
Technology can be used to:
Find indicators of cyclical industries headed for downturn, and set up network of alerts (triggers
seen in the data) to assess the risk
Stay updated about new technologies emerging in the market and whether they can be threat
to our business. Are payment wallets/any other technologies on track to become a threat to
my business
Peer to Peer Lending
Another huge scope for technology driven lending is in the peer to peer lending department. It
addresses a market that has difficulty in getting a sanctioned loan due to bad credit history or small loan
amounts. Disruptors like i2ilending and Faircent have already started exploiting this market. Peer to
peer lending needs a mediator, and smart contracts and blockchain offer a way out.
P2P lending helps certain people to directly attain loans from other people without any financial
intermediary. This could only be possible with the advent of technology and financial platforms that
facilitate P2P lending. Such websites/apps, directly connect the customer with the investors. Before the
same, the portal has enough information regarding the participant to assess the risk involved to the
investor, hence people cannot take advantage and information is more at arms length. This P2P lending
system can either be fully automated, or at times the investors can also chose to bargain, or vice versa.
Customer relationship management