# As digital lending moves from frill to necessity – where are we at? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2019-09-09 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: Digital Lending: The Evolution of Online Banking Services Meta Description: Discover the reasons behind the rapid shift of retail lending from offline to online, the incentives driving banks to embrace digital lending, and the benefits URL: https://financedigest.com/as-digital-lending-moves-from-frill-to-necessity-where-are-we-athtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/increasing-role-of-ux-cx-in-the-journey-of-digital-transformation-for-growth-oriented-organizations-1736838997340-compressed.jpg) By Kirill Zorin, Senior Business Analyst at global technology consultancy DataArt Five years ago, many banks viewed digital lending merely as an alternative sales channel or simply an additional option to their existing credit products. Fast forward to today and across the banking sector retail lending is moving from offline to online. The digital lending [market continues](https://www.financedigest.com/artificial-intelligence-ai-to-catalyze-the-continuous-positive-airway-pressure-cpap-devices-market.html "Artificial Intelligence (AI) to catalyze the Continuous Positive Airway Pressure (CPAP) Devices Market") to expand at a rapid pace with big-name banks regularly announcing new initiatives, the most recent announcement coming from HSBC Bank USA, which in August this year launched its new digital lending platform. **Why do banks bother?** ![Kirill Zorin](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/kirill-zorin-1736838997331-compressed.jpg) Kirill Zorin [Banks are highly incentivised to make the shift to online lending](https://www.financedigest.com/prime-bank-and-agam-spark-lending-revolution-for-individuals-and-business.html "Prime Bank and AGAM spark lending revolution for individuals and business"). There are two main motives [driving this change](https://www.financedigest.com/the-meta-trends-driving-positive-change-for-financial-services.html "The meta trends driving positive change for Financial Services"). The first is the pressure of a highly competitive environment and the [second is the potential for substantial increased profitability](https://www.financedigest.com/metro-bank-posts-second-quarter-of-profitability-on-mortgage-loans-demand.html "Metro Bank posts second quarter of profitability on mortgage loans demand"). [Digital lending significantly reduces costs](https://www.financedigest.com/cost-effective-digitized-innovation-to-drive-the-immune-thrombocytopenia-treatment-market.html "Cost-effective Digitized Innovation to drive the Immune Thrombocytopenia Treatment Market") for branches, e.g. staff and paper [storage costs](https://www.financedigest.com/can-storage-containers-solve-the-soaring-cost-of-bricks.html "Can Storage Containers Solve the Soaring Cost of Bricks?"). Moreover, new players like non-bank credit companies have found success [in digital lending which accelerated the process for retail banks](https://www.financedigest.com/the-power-of-digital-why-theres-still-life-in-the-traditional-retail-banks-yet.html "The power of digital: Why there’s still life in the traditional retail banks yet") to make the shift in a race to remain relevant. Digital lending vastly improves a [bank’s opportunities](https://www.financedigest.com/how-partnerships-between-fintech-start-ups-and-traditional-banks-herald-a-brave-new-world-of-opportunity.html "How partnerships between FinTech start-ups and traditional banks herald a brave new world of opportunity") to obtain new clients For example, millennials who highly appreciate fintech and dislike paper-heavy and time-consuming processes.  It also creates more secure and accurate client profiles for targeted marketing, establishes a fully automated credit flow approach, and [fulfils the promise of round the clock online](https://www.financedigest.com/tesco-to-charge-online-booker-suppliers-new-fulfilment-charge.html "Tesco to charge online, Booker suppliers new fulfilment charge") banking. **[Customers and banks](https://www.financedigest.com/uk-banks-told-to-reimburse-customers-tricked-by-scams.html "UK banks told to reimburse customers tricked by scams") – two sides of the digital lending coin** From a client’s perspective, digital lending is an easy, clear and user-friendly process. The applicant goes directly to a website or [mobile app](https://www.financedigest.com/the-growth-of-mobile-fintech-and-the-impact-for-mobile-app-marketers.html "The growth of mobile fintech and the impact for mobile app marketers") to complete a short application form and quickly receives credit offerings. Digital lending ranges from a final credit decision for [consumer credit like a cash loan](https://www.financedigest.com/ant-group-starts-to-differentiate-consumer-loan-business-jiebei-from-bank-loans.html "Ant Group starts to differentiate consumer loan business Jiebei from bank loans"), credit card or overdraft request, to a pre-decision for secured loans like a mortgage. For some lending, [customers are able to compare offers from different banks](https://www.financedigest.com/lost-in-translation-why-banks-must-learn-the-language-of-their-customers.html "Lost in Translation: Why Banks Must Learn the Language of their Customers") in real-time, select the most attractive offer and get money on their card within minutes. On average the [application process](https://www.financedigest.com/things-mortgage-lender-takes-into-account-when-processing-an-application.html "Things Mortgage Lender Takes Into Account When Processing an Application") takes less than 15 minutes. However, from a bank’s perspective, online lending has significant differences to offline lending and is a very substantial undertaking. Banks have to rebuild their credit processes, credit policies and upgrade their core systems to remain competitive in a [digital marketplace](https://www.financedigest.com/film-and-tv-digital-marketplaces-a-revolutionary-take-on-an-age-old-industry.html "Film and TV digital marketplaces: a revolutionary take on an age old industry"), specifically with regard to the reduction of paperwork and time to decision (TTD).Offline [lending required a lot of paperwork – borrowers](https://www.financedigest.com/pollen-vc-launches-first-live-lending-facility-for-app-and-game-makers-enabling-them-to-borrow-4x-their-monthly-revenues.html "Pollen VC launches first live lending facility for app and game makers, enabling them to borrow 4x their monthly revenues") had to prepare and deliver a lot of documents and references with wet stamps, i.e. ink stamps that are not printer generated, to [banks as part of the lending](https://www.financedigest.com/irish-central-bank-eases-strict-mortgage-lending-limits.html "Irish central bank eases strict mortgage-lending limits") application process and due diligence. Bank employees then verified and validated all of these documents, partially by hand. Therefore, in its entirely, the time to decision (TTD) took a long time. [Digital lending will reduce the number](https://www.financedigest.com/inskin-media-makes-a-number-of-strategic-hires-as-it-furthers-its-mission-to-maximise-attention-and-impact-in-digital-campaigns.html "Inskin Media makes a number of strategic hires as it furthers its mission to maximise attention and impact in digital campaigns") of hard-copy paperwork. [Banks will instead verify borrower’s data](https://www.financedigest.com/asia-shares-edge-higher-wary-of-us-bank-data.html "Asia shares edge higher, wary of US bank data") using the Credit History Bureau and other online databases. As part of credit processes and policies [changes upgrade,banks must create](https://www.financedigest.com/entrepreneur-investor-dale-w-wood-shares-how-he-is-using-his-funds-to-create-change.html "Entrepreneur & Investor Dale W Wood Shares How He Is Using His Funds to Create Change") new anti-fraud systems and new credit metrics based on online customer behaviour. They would also need to collect new types of client information from [social media](https://www.financedigest.com/elon-musk-goes-viral-on-chinese-social-media-with-ancient-poem-post.html "Elon Musk goes viral on Chinese social media with ancient poem post") platforms, develop new behaviour, scoring and anti-fraud models and launch new communication channels for clients such as chatbot software and voice recognition options. **What can possibly go wrong?** Of course, with big [opportunities](https://www.financedigest.com/bae-systems-sees-big-opportunity-in-space-after-uk-satellite-bolt-on.html "BAE Systems sees big opportunity in space after UK satellite bolt-on") come big challenges. If a [bank does not have well-structured credit processes, software, scoring systems and expertise in online lending, then this channel might initially bring in losses for the bank due to the investment](https://www.financedigest.com/investment-banks-trading-revenue-likely-to-shrink-barclays-boss-says.html "Investment banks’ trading revenue likely to shrink, Barclays boss says") required to perform at a competitive level. **[Digital lending platform](https://www.financedigest.com/choosing-the-best-digital-experience-platform-dxp-in-financial-services.html "Choosing the best Digital Experience Platform (DXP) in financial services") must haves:** 1. User-friendly portal for applying [electronic application](https://www.financedigest.com/phosphate-conversion-coatings-market-to-surpass-us-2-35-bn-as-applications-in-consumer-electronic-grows-fmi.html "Phosphate Conversion Coatings Market to Surpass US$ 2.35 Bn as Applications in Consumer Electronic Grows: FMI") forms and paperless processes for sharing documents 2. Customised products catering to a [customer’s needs](https://www.financedigest.com/3-reasons-your-business-needs-customer-reviews.html "3 reasons your business needs customer reviews") 3. The ability to credit [funds to any bank account and a convenient tool for credit repayment](https://www.financedigest.com/credit-suisse-to-repay-further-750-million-to-greensill-linked-fund-investors.html "Credit Suisse to repay further 0 million to Greensill-linked fund investors") **SMEs enter the arena** Digital lending has a [big impact](https://www.financedigest.com/pharmaceutical-contract-packaging-market-current-impact-to-make-big-changes-2020.html "Pharmaceutical Contract Packaging Market Current Impact to Make Big Changes 2020") on retail lending, but we will also see more and more progress in the SME sector. Digitalisation is also advancing in corporate lending, but the players are moving more slowly and with less urgency, given the relatively lower numbers of transactions that can be noted in this segment. One of the reasons for the lag compared to [retail lending is that decisions on SME/Corporate credit applications are typically made](https://www.financedigest.com/britains-next-buys-failed-furniture-retailer-made-com-400-jobs-axed.html "Britain’s Next buys failed furniture retailer Made.com, 400 jobs axed") on an individual case-by-case basis or by a committee. SME/Corporate credit divisions do use some of the [products and processes from retail](https://www.financedigest.com/french-retailer-carrefour-to-freeze-prices-on-100-products-to-tackle-inflation.html "French retailer Carrefour to freeze prices on 100 products to tackle inflation") digital lending to improve and reduce the cost of their credit decision processes, but it is currently further behind in the journey. **Conclusion.** Digital lending will continue to expand at [pace with a focus on the newest and the most effective technical solutions from facial recognition for user identification to voice recognition for effective and quick support to machine learning for product customisation and decision making systems](https://www.financedigest.com/the-leadless-pacing-system-market-to-fathom-the-depth-of-innovation.html "The Leadless Pacing System Market To Fathom The Depth Of Innovation"). Primarily, we will see more and more banks and [fintech companies working together to unite their efforts in digital](https://www.financedigest.com/the-fintech-digital-revolution-will-continue-in-2022.html "The Fintech Digital Revolution Will Continue in 2022") lending, looking for win-to-win strategies that play to their respective strengths. Banks are going to cover risk-management, accounting and reporting as they are strong in those areas and have huge expertise, while at the same time fintech companies will be an ‘Interface’ for consumers providing them with easy access to [information and products](https://www.financedigest.com/golf-apparel-market-key-players-and-production-information-analysis-with-forecast-2031.html "Golf Apparel Market: Key Players and Production Information Analysis with Forecast 2031"). --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---