Propelling Lending & FS towards a Digital Future | HCLTech

Propelling Lending FS towards a digital future

Propelling Lending FS towards a digital future
November 09, 2022

The lending and financial services (FS) industry is going through a definitive watershed moment today. Even though digitization has been a slow permeating aspect of this industry, the recent disruption caused by the global pandemic has only served to speed up the process. The rapidly shifting business landscape is witnessing a constant blurring of business lines opening the door for new, digitally savvy fintech entrants. This was particularly ascertained in a recent survey where 60% of global banking executives expected competition to emerge from non-financial entities such as startups and internet giants.

As a result, the industry is fast seeing a transformation in how it interacts with its customers. In the age of digitization and hyper-personalization, customers are getting accustomed to innovations such as crypto-assets, insurtech, robo-advice, peer-to-peer marketplace lending, and mobile money that simplify lending and financial processes.

Legacy lenders and FS providers must embrace holistic digital transformation to help them remain competitive, relevant, and profitable in this volatile and evolving industry.

Apart from the customer facing side of businesses, technology has also infiltrated the back-office operations with Distributed Ledger Technology (DLT), cloud services, and AI applying a large-scale transformation to disparate business areas such as regulatory and supervisory technology, and financial market trading. However, the transformation process can be highly complex for legacy operators, requiring careful strategizing and planning.

Plotting the challenge landscapes

Perhaps the very first step toward a comprehensive transformation is to precisely understand what digitization brings to the table. A holistic digital transformation in financial services fosters several benefits across the operational area. With agility and cloud deployment, it can help establish a network of ecosystem partners, solving many key challenges for businesses and their customers. Digitization allows companies to address error and delay-prone legacy loan origination and manual regulatory compliance processes full of inefficiencies.

As such, many lenders are already accelerating their adoption of emerging technologies. This helps them adapt to changes and optimize their capabilities. Future trends already indicate this shift as the market for digital lending platforms is pegged to grow from US$ 10.7 billion in 2021 to reach US$ 20.5 billion by 2026 at a CAGR of 13.8%. The caveat, however, is to pursue digital transformation goals strategically. To make the most efforts, lenders need a firm understanding of why the legacy services are fast becoming obsolete.

The existing monolithic systems cannot keep up with customer expectations, leading to reduced customer engagement, manual errors, and longer turnaround times, all contributing to the eventual loss of business. Moreover, lower interest rates, reduced profit margins, and heightened competition from the fintech lending players are certainly not helping the situation.

For legacy lenders and FS providers, the writing is on the wall. They need to fast-track their digital endeavors to stay abreast of operational upgrades. This will help them offer a significantly enhanced customer experience and improve employee engagement and stakeholder relationships by integrating the three pillars of processes, technology, and organizational structures.

Future-proofing operations

There are three main ways through which digitization can transform and future-proof lending and FS:

  • Digital lending solutions: For banks and lenders, lengthy processes significantly hinder operational efficiency and productivity. Modern digital lending solutions can improve this substantially by implementing well-thought-out and proven process automation. With intelligent automation and machine learning, the process can be transformed to reduce TAT, improve transparency, control errors, and stay compliant while freeing up the workforce for high-value operations like business and product innovation.
  • Digital underwriting: Manual underwriting as a process is highly time-consuming and deters agility. Digital underwriting, powered by automation and predictive analytics, speeds up the process significantly while offering better personalization. Research shows that using automation alone reduced the process cycle by an average of 18 days.
  • Leadership awareness: Building a digital-led culture is essential to a holistic organizational transformation. And here, business leaders will have a significant role to play by acting as flagbearers of digital processes and procedures. This will also help them make informed decisions on critical issues such as upgrading core resources or locating the right talent.

The way forward

The past two year’s global disruption has rocked the lending and financial services industry with significant logistical challenges, administrative bottlenecks, and increased competition. Moreover, the rapid shift in lender behavior and the entry of new digitally native participants are turning the screws further. To counter this situation, legacy lenders and FS providers must embrace holistic digital transformation to help them remain competitive, relevant, and profitable.

However, choosing the right tech stack to transform all aspects of their operations can be a substantial challenge for lenders. Enhancing their core services and managing multiple vendors without disrupting processes becomes a major task. And this is where aligning with an experienced technology partner can be instrumental.

Technology partners with proven industry expertise and domain experience can help them deploy next-gen technologies smoothly and seamlessly. With the right advice from domain experts, lending businesses can achieve their digital transformation goals and foster multiple benefits, including saving on operational costs, speeding up processing, and improving user experience.

Read this whitepaper to gain more insights.

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