A turbulent world economy with obstacles and opportunities has resulted from the significant transformation in digitization, consumer behaviour, and technological capabilities. In response, the financial sector is rapidly getting revolutionized, with conventional banking techniques being overtaken by digital alternatives. This allows financial institutions to make quick choices, incorporate the newest technology into their services, and continuously enhance consumer services.
Hence, financial companies are increasingly adopting a new approach to keep up with the evolving customer behaviour and the evolution of technology. However, to implement all the innovative trends, financial organizations leverage cutting-edge technology solutions such as embedded finance, blockchain technology, AML regulations, and much more.
Here are the top trends that will drive the future of the digital lending landscape in 2023 and beyond
The most recent technological development redefining the digital lending sector is embedded lending. This new trend enables financial institutions to provide financing solutions through non-financial services or products by removing the need for expensive third-party involvement. Instead, customers can access capital from familiar and trusted SaaS (Software as a service) companies within a few clicks. One of the most distinguishing features of embedded lending is that it empowers SaaS companies to control their brand image and customer service. For example, embedded lending services can be integrated into a financial company’s platform in customized ways to match the needs of its unique consumers using scalable API. As a result, accessing capital through digital lending firms becomes simpler and more convenient for customers.
The popularity of digital products has contributed to an explosion in financial fraud, cybercrime, data breaches, and other unethical acts. As a result, RegTech or Regulatory Technology enables financial organizations to leverage technical breakthroughs, such as ML, AI, data analytics, etc., to address these concerns by enhancing processes to mitigate risks for compliance. For example, these regulatory solutions track real-time online transactions to detect errors or anomalies in the digital lending landscape. If any irregularity or error occurs, the financial institution is notified to analyze and determine if fraud has occurred. RegTech tools equip financial firms to detect security threats immediately to reduce risk and expenses based on security breaches or thefts. Additionally, it utilizes software as a service (SaaS) on the cloud to help firms comply with rules effectively and affordably.
Blockchain technology is revolutionizing the digital lending industry by enabling direct transactions that are transparent and secured between lenders and borrowers through decentralized funding. It offers the possibility of utilizing “smart contracts” or self-executing contracts that are ledger-based and allow manual processes to be automated, including compliance and claims processing. Additionally, blockchain technology enables peer-to-peer loans. Unlike traditional loans, sophisticated programmed loans can provide a quicker and safer loan application procedure. As a result, blockchain-based digital lending businesses offer a more affordable, effective, and secure means to provide personal loans to a more expansive customer base. For example, decentralized registries of historical payments could give consumers global credit scores for loan applications.
While providing clients’ services, digital lenders generate vast amounts of data daily. Therefore, there is an urgent necessity for financial institutions to efficiently use such data in optimizing their business goals and outcomes and address emerging client expectations. By leveraging big data, financial lending firms can gain a comprehensive understanding of their clients and lending operations. It enables online lenders to collect all relevant data across an organization’s many databases, platforms, products, and services to offer powerful analytical capabilities. Furthermore, digital lenders utilize data to target clients with effective solutions, thus boosting lending activity and profitability. Big data sets digital lenders apart from conventional financial institutions since modern financial technology enables them to utilize Big Data to predict client behaviour and develop detailed risk evaluations.
Future predictions for digital lending indicate that the industry will undergo substantial upheaval in 2023, from expanding lending alternatives and the range of financial services to the speedy and efficient execution of hassle-free & secure transactions. Financial institutions must be flexible, collaborative, and willing to work together to overcome bias to incorporate the right technology or trend effectively in the present digital lending picture. Digital lending firms should strive for continuous flexible collaboration with major stakeholders to ensure that the right technical solutions are purchased for driving digital transformation that contributes to the broader goals.
The author is MD & CEO at Celusion Technologies.
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