Future Of Online loan - Digital Lending in 2020

A shift from our physical world to our digital world is evident. During the pandemic, our activities shifted online. Our work meetings, classes, entertainment, and human interaction were transformed from real to virtual. Our finances and financial needs have become digital as well. The instant loan industry has witnessed a paradigm shift to the digital sphere. Even though the process of instant loan disbursal and collection is not entirely digital, the future of the online loan industry is going completely digital. To understand how this will come in form, we need to explore the entire process of the online loan and how it can become completely digital.

4-main steps

The person applies digitally on an app or the website. The lender receives the documents and issues an audit of the documents. The person’s credit score/CIBIL score is checked and is a crucial step to determine whether the person is worthy of receiving credit. If the CIBIL score is decent, the person’s application reaches the second step.

Some lenders however extend their services to people with a bad CIBIL score too. In such a case, the rate of interest levied is slightly higher.

Once the application is approved, the next step that follows is the disbursement of the instant loan amount or the transfer of the principal amount in the borrower’s bank account. This step is relatively faster than the approval process. 

In a bank, the application process or the user experience is unpleasant. The long queues, bureaucracy, and the time it takes to complete the process are tedious. Compared to applying for an online loan on an app or a website, the process is not only fast but hassle-free. The approval for the loan application follows a long protocol set by the bank. The individual employee cannot bend the rules for a borrower who wants funds for an emergency. Since digital lenders are more flexible and forthcoming to borrowers, an individual employee can help the person in need. The addition of a seamless user experience and an empathetic approach has helped in the growth of the digital lending industry.

After the instant loan has been disbursed, the next step is the repayment of the instant loan. The repayment can be in the form of EMIs or a lump sum form. Repayment is also encouraged to be executed online via internet banking or e-wallets. 

If a person is unable to repay the instant loan, a call is initiated from the lender’s side to ask why the payment was not made. If the reason is legitimate, a mutually beneficial arrangement is made. If the case is otherwise and the borrower refuses to pay the money owed, then a feet-on-street approach is adopted. Personal Loan Interest rate This last step is the only step when there is an interaction in the physical world. 

This last step can be eliminated by designing better algorithms and systems to detect risk factors. Highly controversial but highly probable too would be to centralize data regarding the borrower. There have been appeals for biometric know your customer (KYC), and access to larger data to properly assess the borrower’s financial situation. A person who is in debt and wants to take another debt is highly unlikely to pay both the debt. But the access to this information is not always at the disposal of the lender. Privacy breach and misuse of data is the reasoning behind this hesitance but the advancement in technology and artificial intelligence will make this possible without compromising on the privacy of the individual, at least not in the matters that are of no concern for the lender.

​​​​​​​Writter By Gauri Singh