Financial institutions face a gap between traditional and technology-driven models due to insufficient attention given to digital transformation.
According to Oliver Wyman, banks are now faced with a challenge: to create the business of the future from the legacy they have today.
For example, the launch of a Paycheck Protection Program (PPP) in the United States has shown that the integration and prequalification stages are cumbersome and time-consuming. With this in mind, at the grassroots level, banks
require a more agile approach to loan management, which can be handled through digital loan platforms and automation.
Therefore, it looks like core system vendors and loan software vendors are set to become some of the early winners in the post-pandemic world.
Spring 2020: it’s always the darkest before dawn
In an age of coronavirus and economic shutdown, financial institutions large and small are concerned with finding a quick solution to the problem created. Since mid-March, everything, including digital transformation, launching new business lines and entering new markets, has been on hold while companies waited for the situation to stabilize.
Stricter lending standards, tight offers and lowest interest rates were everywhere. Financial institutions that lacked the capacity to change their credit products quickly had to stop loan issuance for days or weeks. Thus, the value of an agile digital infrastructure has become more important than ever before.
3-1-0 rule in loans as a new normal
There will always be unforeseeable events and unexpected phenomena. What is extremely important is
the ability to adapt quickly to a changing world. The pandemic has accelerated the digital roadmap, with the result that the lending industry is rapidly revising business models and restructuring processes. In April and May, at HES Fintech, we saw a 35% increase in loaner software demo requests. Lenders wanted to either launch first and quickly, or replace their current systems with more advanced ones.
COVID-19 has forced the acceleration of digital transformation. Lenders are now actively seeking to implement a 3-1-0 lending approach: 3 minutes to apply, 1 second to approve, 0 people involved. The framework was first introduced by Ant Financial in 2018.
Digital lending platforms with automated workflows, flexible calculations, product engines, and faster decision making highlight a much wider range of possibilities for lenders. Moreover, the use of AI and machine learning can easily correlate the dependencies hidden among the vast reams of data. So a digital approach can save hundreds of hours of manual labor for risk managers and data analysts, create high performance scoring, churning and propensity models; and improve the performance of the loan portfolio.
In summary, digital lending software coupled with automation and AI makes lending much more convenient for borrowers and lenders today. Since many banks and fintechs are already moving towards digitalization, it is only a matter of time before digital becomes a ‘new normal’. Indeed, lenders without digital capabilities are likely to be overwhelmed by their high-tech counterparts.